CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 18, 1996
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Mikros Systems Corporation
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(Exact Name of Registrant as Specified in Charter)
Delaware 2-67918 14-1598-200
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(State or Other (Commission File Number) (IRS Employer ID No.)
Jurisdiction of
Incorporation)
3490 U.S. Route 1, Princeton, New Jersey 08540
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(Address of Principal Executive Offices) (zip code)
(609) 987-1513
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(Registrant's telephone number, including area code)
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events.
On November 18, 1996, the Company consummated a Common Stock and Warrant
Purchase Agreement (the "Purchase Agreement") with Safeguard Scientifics
(Delaware), Inc., a Delaware corporation ("SSI"), pursuant to which SSI
purchased for an aggregate consideration of $1,000,000: (i) 1,912,000 shares
(the "Shares") of common stock of the Company, $.01 par value ("Common
Stock"); (ii) a warrant (the "First Warrant") to purchase 2,388,000 shares of
Common Stock at an exercise price of $0.65 per share; and (iii) a warrant (the
"Second Warrant") to purchase 3,071,000 shares of Common Stock at an exercise
price of $0.78 per share. The First Warrant and the Second Warrant are
referred to hereinafter collectively as the "Warrants." The exercise prices
of the Warrants are subject to adjustment pursuant to customary anti-dilution
provisions.
The Company intends to use proceeds from the sale of the Shares and the
Warrants for working capital and general corporate purposes.
In connection with the sale of the Shares and the Warrants, the Company
granted to SSI certain piggyback and demand registration rights with respect
to the Shares and the Common Stock underlying the Warrants. In addition, the
Company granted to SSI a right of first refusal pursuant to which, subject to
certain conditions, in the event the Company issues, sells or exchanges any
securities, it must first offer such securities to SSI and such offer must
remain open and irrevocable for 30 days. Such right of first refusal may only
be waived in writing and terminates at such time as SSI owns less than ten
percent (10%) of the Shares.
Pursuant to the Purchase Agreement, as long as SSI owns one percent (1%) or
more of the Company's outstanding equity securities, on a fully-diluted basis,
the Company is obligated to, among other things: (i) maintain key man life
insurance on certain key employees of the Company; (ii) permit SSI to inspect
the operations and business of the Company; and (iii) fix and maintain the
number of Directors on the Board of Directors at eight (8) members. In
addition, the Purchase Agreement also provides that as long as SSI owns such
one percent (1%), the Company is subject to certain negative covenants,
including, among other things, restrictions on: (i) transactions with
affiliates of the Company; (ii) certain indebtedness; and (iii) amendments to
the Company's Certificate of Incorporation and Bylaws.
In connection with the transaction, the Company entered into a voting
agreement pursuant to which each of Joseph R. Burns, Thomas J. Meaney, Wayne
E. Meyer, Frederick C. Tecce and John B. Torkelsen, each a director of the
Company (collectively, the "Management Stockholders"), agreed to vote an
aggregate of approximately 6,659,214 votes for the election of two designees
of SSI to the Board of Directors of the Company.
Also in connection with the transaction, certain of the Company's AM and FM
technology was transferred to a newly-formed company, Data Design &
Development Corporation, a Delaware corporation ("3D"), pursuant to a
Contribution Agreement. Each of the Company, SSI and certain debtholders of
the Company (including each of the Management Stockholders) owns one-third of
the issued and outstanding capital stock of 3D. Pursuant to a License
Agreement, 3D granted to the Company, an exclusive, world-wide, royalty-free,
perpetual right and license in and to the development and marketing of FM
technology in the United States, Canada and Mexico. Pursuant to a Technology
License Agreement, 3D granted to AM Data Transmission Corporation, a Delaware
corporation ("AM Data"), a royalty-free, exclusive, perpetual right and
license in and to the marketing of the AM technology in the United States,
Canada and Mexico. SSI owns 75% of the issued and outstanding capital stock
of AM Data and the Company owns 25% of such capital stock.
<PAGE>
Finally, the Company entered into a Consulting Services Agreement with AM Data
pursuant to which the Company will provide consulting services to AM Data in
consideration for a fee of $200,000 for the development of the AM technology.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Information of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit No. Description of Exhibit
10.1 Common Stock and Warrant Purchase Agreement dated November 15,
1996 by and between Safeguard Scientifics (Delaware), Inc. and
Mikros Systems Corporation.
10.2 License Agreement dated November 15, 1996 by and between Mikros
Systems Corporation and Data Design & Development Corporation.
10.3 Technology License Agreement dated November 15, 1996 by and
among Data Design & Development Corporation, Mikros Systems
Corporation and AM Data Transmission Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Mikros Systems Corporation
By: /s/Thomas J. Meaney
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Thomas J. Meaney, President and
Chief Executive Officer (Principal
Executive Officer)
By: /s/Joseph R. Benek
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Joseph R. Benek, Vice President -
Finance (Principal Financial and
Accounting Officer)
Date: December 6, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Mikros Systems Corporation.
By: /s/ Thomas J. Meaney
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Thomas J. Meaney, President and
Chief Executive Officer (Principal
Executive Officer)
By: /s/ Joseph R. Benek
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Joseph R. Benek, Vice President -
Finance (Principal Financial and
Accounting Officer)
Date: December 6, 1996
<PAGE>
Exhibit 10.1
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE I: PURCHASE, SALE AND TERMS OF SHARES AND WARRANTS
1.01 The Common Stock
1.02 Warrants
1.03 Purchase Price and Closing
1.04 Use of Proceeds
1.05 Representations of the Purchaser
(a) Investment Representations
(b) Access to Information
(c) General Access
(d) Sophistication and Knowledge
(e) Transfer Restrictions Imposed by Securities Laws
(f) Lack of Liquidity
(g) Suitability and Investment Objectives
(h) Accredited Investor Status
(i) Brokers or Finders
ARTICLE II: CONDITIONS TO PURCHASER'S OBLIGATIONS
2.01 Representations and Warranties
2.02 Documentation at Closing
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01 Organization and Standing of the Company
3.02 Corporate Action
3.03 Governmental Approvals
3.04 Litigation
3.05 Certain Agreements of Officers and Employees
3.06 Compliance with Other Instruments
3.07 Title to Assets, Patents
3.08 Financial Information
3.09 Taxes
3.10 ERISA
3.11 Transactions with Affiliates
3.12 Assumptions or Guaranties of Indebtedness of Other Persons
3.13 Investments in Other Persons
3.14 Securities Act of 1933
3.15 Disclosure
3.16 Brokers or Finders
3.17 Capitalization; Status of Capital Stock
3.18 Registration Rights
3.19 Insurance
3.20 Books and Records
3.21 Material Agreements
3.22 Absence of Certain Developments
3.23 Environmental and Safety Laws
3.24 U.S. Real Property Holding Corporation
3.25 1996 Business Plan
3.26 Filings with Securities and Exchange Commission
ARTICLE IV: COVENANTS OF THE COMPANY
4.01 Affirmative Covenants of the Company Other Than Reporting
Requirements
(a) Maintenance of Key Man Insurance
(b) Inspection Rights
<PAGE>
(c) Budgets Approval
(d) Financing
(e) Corporate Existence
(f) Properties, Business, Insurance
(g) Compliance
(h) Keeping of Records and Books of Account
(i) Size of Board
(j) Amendment to Certificate of Incorporation
4.02 Negative Covenants of the Company
(a) Dealings with Affiliates
(b) Restriction on Indebtedness
(c) Conduct of Business
(d) Assumptions or Guaranties of Indebtedness of Other Persons
(e) Investments in Other Corporations or Entities
(f) Amendments
(g) Issuance of Equity Securities
4.03 Reporting Requirements
(a) Budgets and Operating Plan
(b) Notice of Adverse Changes
(c) Reports and Other Information
ARTICLE V: REGISTRATION RIGHTS
5.01 Piggy-Back Registrations
5.02 Required Registration
5.03 Registrations on Form S-3
5.04 Effectiveness
5.05 Indemnification of Holder of Registrable Shares
5.06 Indemnification of Company
5.07 Exchange Act Registration
5.08 Damages
5.09 Further Obligations of the Company
5.10 Expenses
5.11 Approval of Underwriter
5.12 Transferability
5.13 Mergers, Etc.
5.14 Limitations on Subsequent Registration Rights
ARTICLE VI: RIGHT OF FIRST REFUSAL
6.01 Right of First Refusal
6.02 Notice of Acceptance
6.03 Conditions to Acceptances and Purchase
(a) Permitted Sales of Refused Securities
(b) Reduction in Amount of Offered Securities
(c) Closing
6.04 Further Sale
6.05 Termination and Waiver of Right of First Refusal
6.06 Exceptions
ARTICLE VII: DEFINITIONS AND ACCOUNTING TERMS
7.01 Certain Defined Terms
7.02 Accounting Terms
<PAGE>
ARTICLE VIII: MISCELLANEOUS
8.01 No Waiver; Cumulative Remedies
8.02 Amendments, Waivers and Consents
8.03 Addresses for Notices
8.04 Costs, Expenses and Taxes
8.05 Binding Effect; Assignment
8.06 Survival of Representations and Warranties
8.07 Prior Agreements
8.08 Severability
8.09 Confidentiality
8.10 Governing Law
8.11 Dispute Resolution
(a) Good-Faith Negotiations
(b) Mediation
(c) Resolution of Disputes
8.12 Headings
8.13 Counterparts
8.14 Further Assurances
<PAGE>
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
MIKROS SYSTEMS CORPORATION
3490 U.S. Route 1
Princeton, NJ 08540
As of November 15, 1996
To: Safeguard Scientifics (Delaware), Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Re: Common Stock and Warrants
Gentlemen:
MIKROS SYSTEMS CORPORATION, a Delaware corporation (the "Company"), agrees
with Safeguard Scientifics (Delaware), Inc., a Delaware corporation (the
"Purchaser"), as follows:
ARTICLE I: PURCHASE, SALE AND TERMS OF SHARES AND WARRANTS
1.01 The Common Stock.
The Company has authorized the issuance and sale of 1,912,000 shares (the
"Common Shares") of its authorized but unissued shares of Common Stock, $0.01
par value, at a purchase price of $0.523 per Common Share to the Purchaser.
1.02 Warrants.
The Company has authorized the issuance and sale of (a) a warrant,
substantially in the form set forth as Exhibit 1.02A hereto, to the Purchaser
exercisable for 2,388,000 shares of Common Stock at an exercise price per
share, subject to adjustment as to the number of shares and exercise price as
provided therein, of $0.65 (the "$0.65 Warrant") and (b) a warrant,
substantially in the form set forth as Exhibit 1.02B hereto, to the Purchaser
exercisable for 3,071,000 shares of Common Stock at an exercise price per
share, subject to adjustment as to the number of shares of Common Stock and
exercise price as provided therein, of $0.78 per share (the "$0.7883
Warrant"). The $0.65 Warrant and $0.78 Warrant are referred to collectively
as the "Warrants." The Company has authorized and reserved for issuance, and
shall continue to reserve for issuance, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy the exercise rights
of the holders of the Warrants. Any shares of Common Stock issuable upon the
exercise of the Warrants (and such shares when issued) are herein referred to
as the "Warrant Shares." The Common Shares and the Warrant Shares are
referred to collectively as the "Shares" and the Common Shares and the
Warrants are referred to collectively as the "Purchased Securities."
1.03 Purchase Price and Closing.
At the Closing (as hereinafter defined), the Company shall issue and sell to
the Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this
<PAGE>
Agreement, the Purchaser shall purchase the Common Shares and the Warrants.
The aggregate purchase price of the Purchased Securities being acquired by the
Purchaser at the Closing is $1,000,000 (the "Purchase Price"). The closing of
the purchase and sale of the Purchased Securities to be acquired by the
Purchaser from the Company under this Agreement shall take place at the
offices of the Company at 10:00 a.m. on November 15, 1996, or at such other
place or at such time and date thereafter as the Purchaser and the Company may
agree (the "Closing"). At the Closing, the Company will deliver to the
Purchaser (i) a certificate or certificates for the Common Shares registered
in the Purchaser's name (or the name of its nominee) and (ii) the Warrants
against delivery of a check or checks payable to the order of the Company, or
a transfer of funds to the account of the Company by wire transfer,
representing the Purchase Price as payment in full of the purchase price of
the Purchased Securities to be acquired hereunder at the Closing.
1.04 Use of Proceeds.
The Company shall use the cash proceeds from the sale of the Purchased
Securities for working capital and general corporate purposes all as more
specifically described in Exhibit 1.04. As set forth in Exhibit 1.04, the
Company shall promptly after the Closing use the requisite part of the
proceeds to obtain the release of the Letter of Credit, issued August 27, 1996
from PNC Bank to Bank of New York on the account of the Purchaser, in the
amount of $360,000, which Letter of Credit supports a line of credit issued by
Bank of New York to the Company.
1.05 Representations of the Purchaser.
The Purchaser represents and warrants to the Company as follows:
(a) Investment Representations.
It is the Purchaser's present intention to acquire the Purchased Securities
for its own account (and that it will be the sole beneficial owner thereof)
and such Purchased Securities are being and will be acquired by it for the
purpose of investment and not with a view to distribution or resale thereof
except pursuant to registration under the Securities Act or an exemption
therefrom, provided that Purchaser may transfer without consideration up to
15% of the Purchased Securities to certain directors, officers, and key
employees of Safeguard Scientifics, Inc. ("SSI") under SSI's Long Term
Incentive Plan subject to restrictions and other terms and conditions
substantially similar to those set forth in Exhibit 1.05(a) hereto (the "LTIP
Transfers"). The acquisition by the Purchaser of any of the Purchased
Securities acquired by it shall constitute a confirmation of this
representation by the Purchaser. The Purchaser further acknowledges that it
understands, until registered under the Securities Act or transferred pursuant
to the provisions of Rule 144 or Rule 144A as promulgated by the Commission,
all certificates evidencing any of the Purchased Securities, whether upon
initial issuance or upon any transfer thereof, shall bear a legend,
prominently stamped or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws. These securities have been acquired for investment and not
with a view to distribution or resale. These securities may not be offered
for sale, sold, delivered after sale, transferred, pledged or hypothecated in
the absence of an effective registration statement covering such shares under
the Act and any applicable state securities laws, or the availability, in the
opinion of counsel satisfactory to the Company, of an exemption from
registration thereunder."
<PAGE>
(b) Access to Information.
The Purchaser or its designated representative during the course of this
transaction, and prior to the purchase of the Purchased Securities, has had
the opportunity to ask questions of and receive answers from management of the
Company concerning the terms and conditions of the offering of the Purchased
Securities and the additional information, documents, records and books
relative to the Company's business, assets, properties, Intellectual Property
Rights, condition (financial or otherwise), results of operation and
prospects.
(c) General Access.
The Purchaser or its designated representative has received and read or
reviewed, and is familiar with, this Agreement and the other agreements
executed or delivered herewith, and confirms that all documents, records and
books pertaining to the Purchaser's investment in the Company and requested by
the Purchaser or its designated representative have been made available or
delivered to it.
(d) Sophistication and Knowledge.
The Purchaser or its designated representative has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the purchase of the Purchased Securities. The
Purchaser can bear the economic risks of this investment and can afford a
complete loss of its investment.
(e) Transfer Restrictions Imposed by Securities Laws.
The Purchaser understands that the Purchased Securities have not been
registered under the Securities Act or any applicable state securities laws,
and, therefore, cannot be resold unless they are subsequently registered under
the Securities Act and applicable state securities laws or unless exemptions
from such registration is available; except with respect of the LTIP Transfers
the Purchaser is and must be purchasing the Purchased Securities for
investment for the account of such Purchaser and not for the account or
benefit of others, and not with any present view toward resale or other
distribution thereof. The Purchaser acknowledges that it may not resell or
otherwise dispose of all or any part of the Purchased Securities purchased by
it, except as permitted by law, including, without limitation, any regulations
under the Securities Act and applicable state securities laws; the Company
does not have any present intention and is under no obligation to register the
Purchased Securities under the Securities Act and applicable state securities
laws, except as provided in Article V hereof; and Rule 144 or Rule 144A under
the Securities Act may not be available as a basis for exemption from
registration of the Common Shares thereunder.
(f) Lack of Liquidity.
The Purchaser has no present need for liquidity in connection with its
purchase of the Common Shares.
(g) Suitability and Investment Objectives.
The purchase of the Purchased Securities by the Purchaser is consistent with
its general investment objectives. The Purchaser's knowledge and experience in
financial and business matters are such that it is capable of evaluating the
merits and risks of its purchase of the Purchased Securities.
<PAGE>
(h) Accredited Investor Status.
The Purchaser is an "Accredited Investor" as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act. In addition, the
Purchaser is an "institutional investor" as such term is defined in the
regulations promulgated under the Pennsylvania Securities Act of 1971.
(i) Brokers or Finders.
No Person has or will have, as a result of the transactions contemplated by
this Agreement, any right, interest or valid claim against or upon the Company
for any commission, fee or other compensation of any type as a finder or
broker because of any act or omission by the Purchaser or its agents.
ARTICLE II: CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to purchase and pay for the Purchased
Securities at the Closing is subject to the following conditions (all of which
shall be deemed satisfied or waived by the Purchaser at or prior to the
Closing in the event all of the transactions contemplated to be effected at
the Closing are consummated):
2.01 Representations and Warranties.
Each of the representations and warranties of the Company set forth in Article
III hereof shall be true and correct on the date of Closing as though such
representations and warranties were made at and as of such time.
2.02 Documentation at Closing.
The Purchaser shall have received prior to or at the Closing all of the
following materials, each in form and substance satisfactory to the Purchaser
and its counsel, and each of the following events shall have occurred, or each
of the following documents shall have been delivered, prior to or simultaneous
with the Closing:
(a) Copies of (i) the Certificate of Incorporation of the Company, as
amended or restated to date, substantially in the form of Exhibit 2.02(a)(i),
with evidence of the filing and existence thereof, (ii) the By-laws of the
Company as amended or restated to date, substantially in the form of Exhibit
2.02(a)(ii), with evidence of the adoption thereof by the Company's Board of
Directors, and (iii) the resolutions of the Board of Directors of the Company
providing for the approval of this Agreement, the issuance of the Purchased
Securities, and all other agreements or matters contemplated hereby or
executed in connection herewith; all of which have been certified by the
Secretary of the Company to be true, complete and correct; and certified
copies of all documents evidencing other necessary corporate or other action
and governmental approvals, if any, required to be obtained at or prior to the
Closing with respect to this Agreement and the issuance of the Purchased
Securities.
(b) The opinion of Buchanan Ingersoll, P.C., counsel to the Company, in
substantially the form set forth as Exhibit 2.02(b).
(c) A certificate of the Secretary or an Assistant Secretary of the Company
which shall certify the names of the officers of the Company authorized to
sign this Agreement, the certificates for the Common Shares, the Warrants and
the other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company or any of its officers, together with the true
signatures of such officers.
<PAGE>
(d) A certificate of the President and the Treasurer of the Company stating
that the representations and warranties of the Company contained in Article
III hereof and otherwise made by the Company in writing in connection with the
transactions contemplated hereby are true and correct as of the time of the
Closing and that all conditions required to be performed prior to or at the
Closing have been performed as of the Closing.
(e) The Company shall have obtained all consents and waivers necessary to be
obtained at or prior to the Closing to execute and deliver this Agreement, the
Common Shares, the Warrants and the other agreements and instruments to be
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and
waivers shall be in full force and effect at the Closing. All corporate and
other action and governmental filings necessary to effectuate the terms of
this Agreement, and the other agreements and instruments to be executed and
delivered by the Company in connection herewith and to issue and sell the
Common Shares and the Warrants shall have been made or taken.
(f) The Certificate of Incorporation of the Company shall have been amended
and restated in the form set forth in Exhibit 2.02(a)(i) attached hereto and
the By-laws of the Company shall have been amended in the form set forth in
Exhibit 2.02(a)(ii).
(g) A Certificate of the Secretary of State of the State of Delaware as to
the due incorporation and good standing of the Company and a certificate of
the Secretary of State of each other jurisdiction in which the Company is
required to qualify to do business as a foreign corporation shall have been
provided to the Purchaser and its counsel.
(h) Payment for the costs, attorneys' fees, consulting fees, expenses, taxes
and filing fees identified in Section 8.04.
(i) The Purchaser, the Company and the Management Stockholders shall have
entered into the Voting Agreement in substantially the form attached as
Exhibit 2.02(i) hereto (the "Voting Agreement").
(j) The Company shall have entered into a Consulting Agreement with the
Purchaser or its designee in the form attached as Exhibit 2.02(j)A in which
the services of the employees designated in Exhibit 2.02(j)B are obtained and
such employees shall have entered into a Non-Competition, Assignment of
Inventions and Nondisclosure Agreement with the Company and the Purchaser in
the form attached as Exhibit 2.02(j)C.
(k) The Company or its designee shall have entered into a License Agreement
with the Purchaser or its designee in the form attached as Exhibit 2.02(k)A
for the license to the Purchaser or its designee of all AM Technology for
development and for marketing exclusively in the Territory and for any FM
Technology applicable to the AM Technology development (as such capitalized
terms are defined in the License Agreement) and to provide for certain royalty
payments to the Company or its designee from monies from the AM Technology
accruing to the Company outside the Territory.
(l) The Company will have formed a new company, Data Design & Development
Corporation ("3D"), and transferred all the right, title and interest of all
of the AM Technology and FM Technology, including any patents, to 3D, and the
Company and the Purchaser shall each have a 1/3 equity interest in 3D.
(m) Consents shall be obtained from all secured creditors of the Company for
the transactions contemplated hereby, including the License Agreement and the
transfer of technology described in subparagraph (l) hereof and any filings in
respect thereof shall have been made.
<PAGE>
(n) Certain deferrals of debt of the Company shall have been obtained as
outlined in Exhibit 2.02(n).
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
3.01 Organization and Standing of the Company.
The Company is a duly organized and validly existing corporation in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority for the ownership and operation of its
properties and for the carrying on of its business as now conducted and as now
proposed to be conducted. The Company is duly licensed or qualified and in
good standing as a foreign corporation authorized to do business in all
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, assets, properties,
Intellectual Property Rights, condition (financial or otherwise), results of
operation or prospects of the Company (a "Material Adverse Effect").
3.02 Corporate Action.
The Company has all necessary corporate power and has taken all corporate
action required to enter into and perform this Agreement and any other
agreements and instruments executed in connection herewith. This Agreement,
the Voting Agreement and any other agreements and instruments executed by the
Company in connection herewith have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. When executed and delivered by the parties at or
prior to the Closing, the Voting Agreement will have been duly authorized,
executed and delivered by the Stockholders (as defined therein) and will
constitute the legal, valid and binding obligations of such Stockholders,
enforceable against the several Stockholders in accordance with its terms.
The Purchased Securities have been duly authorized. The issuance, sale and
delivery of the Purchased Securities and the issuance and delivery of the
Warrant Shares upon the exercise of the Warrants have been duly authorized by
all required corporate action; the Common Shares, upon issuance in accordance
with the terms hereof, will have been validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof
and will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except for any set forth in
this Agreement or the Voting Agreement; the Warrants, upon issuance in
accordance with the terms hereof, will have been validly issued, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in this
Agreement or the Voting Agreement; and, as of the Closing, the Warrant Shares
have been duly authorized and reserved for issuance upon exercise of the
Warrants and, when so issued (assuming payment therefor has been made in
accordance with the terms of the Warrants), will be duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock with no personal
liability attached to the ownership thereof and will be free and clear of all
liens, charges, restriction, claims and encumbrances imposed by or through the
Company except as set forth in this Agreement or the Voting Agreement.
Neither the issuance, sale or delivery of the Common Shares, Warrants or
Warrant Shares is subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any
person.
<PAGE>
3.03 Governmental Approvals.
Except as set forth in Exhibit 3.03 and except for the filing of any notice
prior or subsequent to the Closing that may be required under applicable state
and/or federal securities laws (which, if required, has been or shall be filed
on a timely basis), and no authorization, consent, approval, license,
exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the execution and
delivery by the Company of this Agreement, for the offer, issue, sale,
execution or delivery of the Common Shares, the Warrants or the Warrant
Shares, or for the performance by the Company of its obligations under this
Agreement or the Voting Agreement.
3.04 Litigation.
Except as disclosed in Exhibit 3.04, (i) there is no litigation or
governmental proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company affecting any of its properties or
assets, or against any officer, Key Employee or the holder of more than 10% of
the capital stock of the Company and relating to the Company or its business,
and (ii) no event has occurred and no condition exists, in each case, which
might serve as the basis on which any litigation, proceeding or investigation
might properly be instituted. Neither the Company nor, to the best knowledge
of the Company, any officer, Key Employee or holder of more than 10% of the
capital stock of the Company is in default with respect to any order, writ,
injunction, decree, ruling or decision of any court, commission, board or
other government agency, which such default might result in a Material Adverse
Effect. There are no actions or proceedings pending or, to the Company's
knowledge, threatened (or any basis therefor known to the Company) which
might, either in any case or in the aggregate, have a Material Adverse Effect,
or which might call into question the validity of this Agreement, the Common
Shares, the Warrants or any action taken or to be taken pursuant hereto or
thereto. The foregoing sentences include, without limiting their generality,
actions pending or, to the Company's knowledge, threatened (or any basis
therefor known to the Company) involving the prior employment or engagement of
any of the Company's officers, employees or consultants or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers or to any other Person.
Without limitation to the foregoing representations, a brief summary of the
Company's material litigation and the disposition of such matters is set forth
in Exhibit 3.04.
3.05 Certain Agreements of Officers and Employees.
(a) No officer, employee or consultant of the Company is, or is now, to the
Company's knowledge, expected to be, in violation of any term of any
employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or agreement or any
restrictive covenant, including those set forth in Exhibit 3.21, relating to
the right of any such officer, employee or consultant to be employed or
engaged by the Company because of the nature of the business conducted or to
be conducted by the Company or relating to the use of trade secrets or
proprietary information of others, and to the Company's best knowledge and
belief, the continued employment or engagement of the Company's officers,
employees or consultants does not subject the Company or the Purchaser to any
liability with respect to any of the foregoing matters.
(b) No officer, consultant or Key Employee of the Company whose termination,
either individually or in the aggregate, could have an adverse effect on the
Company, has terminated as of the date hereof, or, to the best knowledge of
<PAGE>
the Company, has any present intention of terminating, his employment or
engagement with the Company.
3.06 Compliance with Other Instruments.
The Company is in compliance in all respects with the terms and provisions of
this Agreement and of its Certificate of Incorporation and By-laws, each as
amended or restated to date, and in all respects with the material terms and
provisions of all mortgages, indentures, leases, agreements and other
instruments by which it is bound or to which it or any of its properties or
assets are subject. The Company is in compliance in all material respects
with all judgments, decrees, governmental orders, laws, statutes, rules or
regulations by which it is bound or to which it or any of its properties or
assets are subject. Neither the execution and delivery of this Agreement, the
Voting Agreement or the Purchased Securities, nor the consummation of any
transaction contemplated herein or therein, has constituted or resulted in or
will constitute or result in a default or violation of any term or provision
of any of the foregoing documents, instruments, judgments, agreements,
decrees, orders, statutes, rules and regulations. A schedule of Indebtedness
of the Company as of September 30, 1996, (including lease obligations required
to be capitalized in accordance with applicable Statements of Financial
Accounting Standards) is attached as Exhibit 3.06.
3.07 Title to Assets, Patents.
The Company has good and marketable title in fee to such of its fixed assets
as are real property, and good and marketable title to all of its assets now
carried on its books, which assets consist of those reflected in the most
recent balance sheet of the Company included as part of Exhibit 3.08 attached
hereto, or acquired since the date of such balance sheet (except personal
property disposed of since said date in the ordinary course of business), free
of any mortgages, pledges, charges, liens, security interests or other
encumbrances (collectively, "Encumbrances") other than (a) any such
Encumbrance created in accordance with the terms of the leases, security
agreements and other financing documents listed in Exhibit 3.07, (b) liens for
taxes not yet due and payable, (c) liens imposed by law and incurred in the
ordinary course of business for obligations not yet due and payable to
landlords, carriers, warehousemen, materialmen and the like, and (d)
unperfected purchase money security interests existing in the ordinary course
of business without the execution of a separate security agreement. The
Company enjoys peaceful and undisturbed possession under all leases under
which it is operating, and all said leases are valid and subsisting and in
full force and effect.
The Company owns or has a valid right to use the Intellectual Property Rights
being used to conduct its business as now operated and as now proposed to be
operated as set forth in the 1996 Business Plan (a complete list of licenses
and registrations of such Intellectual Property Rights is attached hereto as
Exhibit 3.07); and, to the best knowledge of the Company, the conduct of its
business as now operated and as now proposed to be operated as set forth in
the 1996 Business Plan does not and will not conflict with or infringe upon
the intellectual property rights of others. Except as set forth in Exhibit
3.07, no claim is pending or threatened against the Company or its officers,
employees and consultants to the effect that any such Intellectual Property
Right owned or licensed by the Company, or which the Company otherwise has the
right to use, is invalid or unenforceable by the Company. Except pursuant to
the terms of any licenses specified in Exhibit 3.07, the Company has no
obligation to compensate any Person for the use of any such Intellectual
Property Rights and, the Company has not granted any Person any license or
other right to use any of the Intellectual Property Rights of the Company,
whether requiring payment of royalties or not.
<PAGE>
The Company has taken all reasonable measures to protect and preserve the
security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. All employees
and consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect
the confidentiality and value of the Company's Intellectual Property Rights
and to vest in the Company exclusive ownership of such Intellectual Property
Rights. To the best knowledge of the Company, all trade secrets and other
confidential information of the Company are presently valid and protectable
and are not part of the public domain or knowledge, nor, to the best knowledge
of the Company, have they been used by, divulged to or appropriated for the
benefit of any Person other than the Company or otherwise to the detriment of
the Company. To the best of the Company's knowledge, no employee or
consultant of the Company has used any trade secrets or other confidential
information of any other person in the course of their work for the Company.
The Company is the exclusive owner of all right, title and interest in its
Intellectual Property Rights as purported to be owned by the Company, and such
Intellectual Property Rights are valid and in full force and effect. Neither
the Company nor any of its employees or consultants has received notice of,
and to the best of the Company's knowledge, there are no claims that the
Company's Intellectual Property Rights or the use or ownership thereof by the
Company infringes, violates or conflicts with any such right of any third
party. No university, hospital, government agency (whether federal or state)
or other organization which sponsored research and development conducted by
the Company has any claim of right to or ownership of or other encumbrance
upon the Intellectual Property Rights of the Company.
3.08 Financial Information.
The financial statements of the Company, including (i) the Company's unaudited
financial statements consisting of a balance sheet of the Company as of
December 31, 1993, 1994 and 1995 and the related statements of income,
retained earnings and cash flows for the years then ended and (ii) the
Company's unaudited balance sheet and the related statements of income and
cash flows as of September 30, 1996, all as attached hereto as Exhibit 3.08
are true and correct and present fairly the financial position of the Company
as at the dates thereof and the results of its operations for the years and
period then ended and have been prepared in accordance with generally accepted
accounting principles consistently applied, except, in the case of the
September 30, 1996 financial statements, for the absence of footnotes and
normal nonmaterial year-end adjustments. Such financial statements are
collectively referred to herein as the "Financial Statements." The Company
does not have, and has no reasonable grounds to know of, any liability,
contingent or otherwise, not adequately reflected in or reserved against in
the Financial Statements. Since September 30, 1996, (i) there has been no
material adverse change in the business, assets, properties, Intellectual
Property Rights, condition (financial or otherwise), results of operation or
prospects of the Company; (ii) none of the business, assets, properties,
Intellectual Property Rights, condition (financial or otherwise), results of
operation or prospects of the Company has been materially adversely affected
as the result of any legislative or regulatory change, any revocation or
change in any franchise, permit, license or right to do business, or any other
event or occurrence, whether or not insured against; and (iii) the Company has
not entered into any material transaction other than in the ordinary course of
business, made any distribution on its capital stock, or redeemed or
repurchased any of its capital stock. Except as set forth in Exhibit 3.08,
the Company has no liabilities or obligations of any type or nature (whether
known or unknown, matured or not, contingent or accrued) except for current
liabilities incurred in the ordinary course of business since September 30,
1996. Also included in Exhibit 3.08 is a true, correct and complete copy of
the Company's 1996 Business Plan (the "1996 Business Plan").
<PAGE>
3.09 Taxes.
The Company has accurately prepared and timely filed all federal, state and
other tax returns required by law to be filed by it, has paid or made
provision for the payment of all taxes due or shown to be due (including,
without limitation, the payment of all payroll and withholding taxes) and all
additional assessments, and adequate provisions have been made and are
reflected in the Company's financial statements for all current taxes and
other tax-related charges to which the Company is subject and which are not
currently due and payable. None of the federal income tax returns of the
Company have been audited by the Internal Revenue Service (the "IRS") and the
Company is not aware of any pending or threatened audit of its Federal income
tax returns by the IRS. The Company knows of no additional assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened for any period, nor of any basis for any such assessment,
adjustment or contingency. Neither the Company nor, to the best of the
Company's knowledge, any of its stockholders, has ever filed a consent
pertaining to the Company pursuant to Section 341(f) of the Code relating to
collapsible corporations.
3.10 ERISA.
There is set forth or identified in Exhibit 3.10 all of the plans, funds,
policies, programs, arrangements or understandings sponsored or maintained by
the Company which provide any employee of the Company (or any dependent or
beneficiary of any such employee) with (a) retirement benefits; (b) incentive,
performance, stock, share appreciation or bonus awards; ; or (c) any type of
material benefit offered under any arrangement subject to characterization as
an "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and not excepted
by Section 4 of ERISA (the foregoing being collectively called "Employee
Benefit Plans"). None of such Employee Benefit Plans is an "employee benefit
pension plan" or a "pension plan" as defined in Section 3(2) of ERISA. As to
any Employee Benefit Plan identified in Exhibit 3.10, each of the following is
true: (i) all amounts due from the Company as contributions to the date hereof
have been paid or accrued on its books; (ii) the Company and any Affiliated
Company (as hereinafter defined) have performed or satisfied all material
obligations required to be performed or satisfied by them under, and are not
in default under or in violation of, any Employee Benefit Plan and, to the
best of the Company's knowledge, no other party is in default thereunder or in
violation thereof; (iii) the Company and any Affiliated Company are in
compliance in all material respects with the requirements (including reporting
and disclosure requirements applicable to them) prescribed by all statutes,
orders or governmental rules or regulations applicable to the Employee Benefit
Plans, including, but not limited to, ERISA and the Internal Revenue Code of
1986, as amended (the "Code"); (iv) neither the Company nor any Affiliated
Company or any other "disqualified person" or "party in interest" (as defined
in Section 4975 of the Code and Section 3(14) of ERISA, respectively) has
engaged in any "prohibited transaction," as such term is defined in Section
4975 of the Code or Section 406 of ERISA, which could subject any Employee
Benefit Plan (or its related trust), the Company or any Affiliated Company,
Purchaser, any shareholder, officer, director, partner or employee of the
Company, any Affiliated Company or Purchaser, or any trustee, administrator or
other fiduciary of any Employee Benefit Plan to the tax or penalty imposed
under Section 4975 of the Code or Section 502(i) of ERISA; and (v) there are
no material actions, suits or claims pending (other than routine claims for
benefits) or, to the best of the Company's knowledge, threatened, against any
Employee Benefit Plan or against the assets of any Employee Benefit Plan. For
purposes of this Section 3.10, "Affiliated Company" shall mean any member
(whether or not incorporated) of a group which is part of a controlled group
of corporations or under common control (within the meaning of the regulations
promulgated under Section 414 of the Code) and of which the Company is a
member. The Company does not maintain or participate in, and has never
<PAGE>
maintained or participated in, any "multiemployer plans" as defined in Section
3(37) of ERISA.
3.11 Transactions with Affiliates.
Except as set forth in Exhibit 3.11, there are no loans, leases, royalty
agreements or other continuing transactions between (a) the Company or any of
its customers or suppliers, and (b) any officer, employee, consultant or
director of the Company or any Person owning five percent or more of the
capital stock of the Company or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
3.12 Assumptions or Guaranties of Indebtedness of Other Persons.
The Company has not assumed, guaranteed, endorsed or otherwise become directly
or contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure
the creditor against loss), any Indebtedness of any other Person except as set
forth in Exhibit 3.12.
3.13 Investments in Other Persons.
Except as set forth in Exhibit 3.13, the Company has not made any loans or
advances to any Person which is outstanding on the date of this Agreement in
excess of $5,000 in the aggregate, nor is it committed or obligated to make
any such loan or advance, nor does the Company own any capital stock, assets
comprising the business of, obligations of, or any interest in, any Person.
The Company does not have, and has not since its incorporation had, any
Subsidiaries.
3.14 Securities Act of 1933.
The Company has complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the
Purchased Securities hereunder. Neither the Company nor anyone acting on its
behalf has or will sell, offer to sell or solicit offers to buy the Purchased
Securities or similar securities to, or solicit offers with respect thereto
from, or enter into any preliminary conversations or negotiations relating
thereto with, any Person, so as to bring the issuance and sale of the
Purchased Securities under the registration provisions of the Securities Act
and applicable state securities laws.
3.15 Disclosure.
Neither this Agreement, the Financial Statements, nor any other agreement,
document, certificate, statement, whether oral or written, furnished to the
Purchaser or its counsel by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading. Projections made in the 1996 Business Plan are not
considered to be facts for the purpose of this Section. Such projections were
prepared in good faith on the basis of reasonable assumptions, and all such
assumptions which are material to such projections have been disclosed in the
1996 Business Plan. There is no fact within the knowledge of the Company or
any of its executive officers which has not been disclosed herein or in
writing by them to the Purchaser and which materially adversely affects, or in
the future in their opinion may, insofar as they can now foresee, have a
<PAGE>
Material Adverse Effect. Without limiting the foregoing, the Company has no
knowledge that there exists, or there is pending or planned, any patent,
invention, device, application or principle or any statute, rule, law,
regulation, standard or code which would have a Material Adverse Effect.
3.16 Brokers or Finders.
No Person has or will have, as a result of the transactions contemplated by
this Agreement, any right, interest or valid claim against or upon the Company
for any commission, fee or other compensation as a finder or broker because of
any act or omission by the Company or its respective agents.
3.17 Capitalization; Status of Capital Stock.
The authorized capital stock of the Company constitutes 25,000,000 shares of
Common Stock, $0.01 par value. As of October 15, 30, 1996 and without giving
effect to the transactions contemplated hereby, 9,224,952 shares of Common
Stock, 1,005,000 shares of Convertible Preferred Stock, $0.01 par value,
1,131,663 shares of Series B Preferred Stock, $0.01 par value, 5,000 shares of
Series C Preferred Stock, $0.01 par value, and 690,000 shares of Series D
Preferred Stock, $0.01 par value, will be issued and outstanding. A complete
list of the capital stock of the Company which has been previously issued and
the names in which such capital stock is registered on the stock transfer book
of the Company is set forth in Exhibit 3.17 hereto. All of the outstanding
shares of capital stock of the Company have been duly authorized, and are
validly issued, fully-paid and nonassessable. The Common Shares, when issued
and delivered in accordance with the terms hereof, will be duly authorized,
validly issued, fully-paid and non-assessable. The Warrants, when issued and
delivered in accordance with the terms hereof, and the Warrant Shares, when
issued and delivered upon exercise of the Warrants in accordance with the
terms thereof, will be duly authorized, validly issued, fully paid and
nonassessable. Except for (i) 3,576,666 shares of Common Stock that have been
reserved for issuance upon the exercise of outstanding stock options and
warrants as further set forth on Exhibit 3.17, no options, warrants,
subscriptions or other purchase rights of any nature to acquire from the
Company, or commitments of the Company to issue, shares of capital stock or
other securities are authorized, issued or outstanding, nor is the Company
obligated in any other manner to issue shares or rights to acquire any of its
capital stock or other securities except as contemplated by this Agreement.
No anti-dilution adjustment has occurred or will occur as a result of the
issuance of the Warrants or the issuance of the Warrant Shares upon the
exercise of the Warrants under any outstanding warrants, the Company and the
warrant holders having amended the warrants to provide an exception for the
issuance of the Warrants and the issuance of the Warrant Shares upon the
exercise thereof. None of the Company's outstanding securities or authorized
capital stock or the Common Shares are subject to any rights of redemption,
repurchase, rights of first refusal, preemptive rights or other similar
rights, whether contractual, statutory or otherwise, for the benefit of the
Company, any stockholder or any other Person, except pursuant hereto
(including pursuant to Exhibits 2.02(a)(i) and 3.17 hereto) or the Voting
Agreement. Except as set forth in Exhibit 3.17, there are no restrictions on
the transfer of any shares of capital stock of the Company other than those
imposed by relevant federal and state securities laws and as otherwise
contemplated by this Agreement or the Voting Agreement. Except as set forth
in Exhibit 3.17 or in the Voting Agreement, there are no agreements,
understandings, trusts or other collaborative arrangements or understandings
concerning the voting or transfer of the capital stock of the Company. The
offer and sale of all capital stock and other securities of the Company issued
before the Closing complied with or were exempt from all applicable Federal
and state securities laws and no stockholder has a right of rescission or
damages with respect thereto.
<PAGE>
3.18 Registration Rights.
Except for those registration rights set forth in Exhibit 3.18, and except for
the rights granted hereunder, no Person has demand or other rights to cause
the Company to register any securities of the Company under the Securities Act
or to participate in any registration of the Company's securities under such
Act.
3.19 Insurance.
The Company carries insurance covering its properties and business which is
adequate and customary for the type and scope of its properties, assets and
business, and similar to companies of comparable size and condition similarly
situated in the same industry in which the Company operates, but in any event
in amounts sufficient to prevent the Company from becoming a co-insurer or
self-insurer, with provision for reasonable deductibles.
3.20 Books and Records.
The books of account, ledgers, order books, records and documents of the
Company accurately and completely reflect all material information relating to
the business of the Company, the location and collection of its material
assets, and the nature of all transactions giving rise to the material
obligations or accounts receivable of the Company.
3.21 Material Agreements.
Exhibit 3.21 sets forth a list of each written or oral agreement or commitment
to which the Company is a party or by which it is bound that is material to
the conduct of the Company's business, including without limitation (i) each
agreement that requires future expenditures by the Company in excess of $5,000
or that might result in payment to the Company in excess of $5,000, (ii) each
employment agreement, consulting agreement, employee benefit plan, bonus plan,
stock option plan, stock purchase plan or similar plan or arrangement, (iii)
each distributor or sales representative agreement, (iv) each agreement with
any stockholder, officer, director or employee of the Company, and (v) each
material agreement relating to Intellectual Property Rights. The Company, and
to the best of the Company's knowledge, each other party thereto have in all
material respects performed all the obligations required to be performed by
them to date, have received no notice of default and are not in default under
any lease, agreement or contract now in effect to which the Company is a party
or by which it or its property may be bound, the result of which could cause a
Material Adverse Effect. Except as set forth in Exhibit 3.21, each of the
contracts or agreements listed in Exhibit 3.21 is in full force and effect
with no default, anticipated or threatened default or failure of performance
or observance of any obligations or conditions contained therein, and none of
the foregoing parties nor the Company has provided any notice of default or of
its intention to terminate these agreements.
3.22 Absence of Certain Developments.
Except as provided in Exhibit 3.22, since September 30, 1996, the Company has
not:
(a) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its present fiscal year, as adjusted to reflect the current nature
and volume of the Company's business;
<PAGE>
(c) discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(d) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(e) mortgaged or pledged any of its assets, tangible or intangible, or
subjected them to any liens, charge or other encumbrance, except liens for
current taxes not yet due and payable;
(f) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any patents, patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any persons except to customers in the ordinary course of
business;
(h) suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
(i) made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;
(j) made capital expenditures or commitments therefor that aggregate in
excess of $25,000;
(k) entered into any other transaction other than in the ordinary course of
business, or entered into any other material transaction, whether or not in
the ordinary course of business;
(l) made charitable contributions or pledges that aggregate in excess of
$5,000;
(m) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(n) experienced any problems with labor or management in connection with the
terms and conditions of their employment; or
(o) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company.
3.23 Environmental and Safety Laws.
To the best of the Company's knowledge, it is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational safety and health, and to the best of its knowledge after due
investigation, no material expenditures will be required in order to comply
with any such statute, law or regulation.
3.24 U.S. Real Property Holding Corporation.
The Company is not now and has never been a "United States Real Property
Holding Corporation" as defined in Section 897(c)(2) of the Code and Section
1.897-2(b) of the Regulations promulgated by the Internal Revenue Service.
<PAGE>
3.25 1996 Business Plan.
All factual information contained in the 1996 Business Plan was when given and
is at the date of this Agreement true, complete and accurate in all material
respects and not misleading and, without prejudice to the generality of the
foregoing, the financial forecasts contained in the 1996 Business Plan were
prepared in good faith and on a reasonable basis, including such assumptions
upon which they are based as to the prospects of the Company, having regard to
the information available and to the market conditions prevailing at the time
of their preparation.
3.26 Filings with Securities and Exchange Commission.
The Company has made all filings with the Securities and Exchange Commission
(the "SEC") which, under the rules and regulations of the SEC, Company is
required to file, and the reports, proxy statements and other information
filed by the Company with the SEC contain substantially all of the information
required by the rules and regulations of the SEC to be included therein.
Exhibit 3.26 contains a list of all reports, proxy statements and other
information filed by the Company with the SEC between January 1, 1991 and the
date hereof.
ARTICLE IV: COVENANTS OF THE COMPANY
4.01 Affirmative Covenants of the Company Other Than Reporting Requirements.
Without limiting any other covenants and provisions hereof, and except to the
extent the following covenants and provisions of this Section 4.01 are waived
in any instance by both of the Investor Directors, as long as the Purchaser's
equitable interest in the Company is 1% or greater on a fully diluted basis,
the Company shall perform and observe the following covenants and provisions,
and shall cause each Subsidiary, if and when such Subsidiary exists, to
perform and observe such of the following covenants and provisions as are
applicable to such Subsidiary:
(a) Maintenance of Key Man Insurance.
Maintain term life insurance on the lives of the employees listed on Exhibit
2.02(j)(B) in the amount of $200,000, in each case for so long as such person
remains an officer or employee of the Company, the proceeds of which are
payable to the Company. The Company shall add the Purchaser as a notice party
to such policy and request that the issuer of such policy provide the
Purchaser with at least 20 days' notice before such policy is terminated (for
failure to pay premium or otherwise) or assigned, or before any change is made
in the designation of the beneficiary thereof..
(b) Inspection Rights.
Permit during normal business hours, upon reasonable request and notice, the
Purchaser or any employees, agents or representatives thereof, to examine and
make copies of and extracts from the records and books of account of, and
visit and inspect the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the affairs, finances and accounts
of the Company and any Subsidiary with any of its officers, consultants,
directors, Key Employees, attorneys or independent accountants; provided,
however, that the Purchaser, employee, agent or representative, as the case
may be, agrees to hold all information confidential on the terms set forth in
Section 8.09 hereof.
(c) Budgets Approval.
At least 30 days prior to the commencement of each fiscal year, prepare and
submit to, and obtain in respect thereof the approval of two-thirds of the
members of the Board of Directors a business plan and monthly operating budget
in detail for each fiscal year, monthly operating expenses and profit and loss
<PAGE>
projections, quarterly cash flow projections and a capital expenditure budget
for the fiscal year (the "Business Plan"). The Company shall conduct its
operations in each fiscal year in accordance with its Business Plan which
corresponds to such fiscal year and any proposed expenditure or series of
related expenditures which is not expressly included in the Business Plan and
which exceeds $10,000 shall not be made, nor shall any commitment be made with
respect to such expenditures, by the Company prior to the approval of such
expenditure or series of related expenditures by two-thirds of the members of
the Board of Directors.
(d) Financing.
Promptly, fully and in detail, inform the Board of Directors of any
discussions, offers or contracts relating to possible financing of any
material nature for the Company, whether initiated by the Company or any other
Person.
(e) Corporate Existence.
Maintain and cause each of its Subsidiaries to maintain its respective
corporate existence, Intellectual Property Rights, other rights and franchises
in full force and effect to the extent appropriate in accordance with good
business practice.
(f) Properties, Business, Insurance.
Maintain and cause each of its Subsidiaries to maintain as to its respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies of a similar size and financial
condition similarly situated within the same industry.
(g) Compliance.
Comply, and cause each Subsidiary to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could have a Material Adverse
Effect.
(h) Keeping of Records and Books of Account.
Keep, and cause each Subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such Subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
(i) Size of Board.
Fix and maintain the number of Directors on the Board of Directors of the
Company at eight (8) members.
(j) Amendment to Certificate of Incorporation.
No later than the first annual meeting of the Company's shareholders after the
date hereof, the Company shall submit to a shareholder vote, get approval for,
and shall file an amendment to the Company's Certificate of Incorporation
increasing the number of its authorized shares of Common Stock from 25,000,000
shares in order to ensure that the a sufficient number of shares of Common
Stock are authorized and reserved for issuance to satisfy the exercise of the
Warrants.
4.02 Negative Covenants of the Company.
Without limiting any other covenants and provisions hereof, and except to the
extent the following covenants and provisions of this Section 4.02 are waived
in any instance by the Investor Directors, as long as the Purchaser's
equitable interest in the Company is 1% or greater on a fully diluted basis,
<PAGE>
the Company shall comply with and observe the following negative covenants and
provisions, and shall cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary,
if and when such Subsidiary exists, and the Company shall not:
(a) Dealings with Affiliates.
Enter into any transaction, including, without limitation, any loan or
extension of credit or royalty agreement with any employee, consultant,
officer or director of the Company or any Subsidiary or holder of five percent
of any class of capital stock of the Company or any Subsidiary, or any member
of their respective immediate families or any corporation or other entity
directly or indirectly controlled by one or more of such employees,
consultants, officers, directors or five percent stockholders or members of
their immediate families, (i) on terms less favorable to the Company or any
Subsidiary than it would obtain in a transaction between unrelated parties and
(ii) except in the case of any transaction or series of transactions entered
into in the ordinary course of business and involving less than $5,000 in the
aggregate.
(b) Restriction on Indebtedness (or permit any Subsidiary to do any of the
foregoing) other than the following:
(i) Indebtedness existing on the date hereof and listed in Exhibit 3.06 and
renewals, replacements and refinancing thereof that do not increase the
aggregate amount of Indebtedness of the Company and its Subsidiaries taken as
a whole; and Indebtedness contemplated by the Business Plan or in a budget or
projection approved by a majority of the members of the Board of Directors
(including both Investor Directors);
(ii) guarantees by the Company of Indebtedness incurred by Subsidiaries of
the Company, provided that the Indebtedness guaranteed pursuant to this
subsection (ii) shall not exceed $100,000 at any time outstanding with respect
to any one Subsidiary or $250,000 in the aggregate at any time outstanding
with respect to all Subsidiaries;
(iii) Indebtedness of a Subsidiary owing to the Company or to another
Subsidiary; or
(iv) Additional Indebtedness not to exceed an aggregate of $100,000 incurred
in any fiscal quarter, and not to exceed in the aggregate $250,000 at any
time, determined on a consolidated basis (including guarantees permitted by
clause (ii) of this Section 4.02(b)).
(c) Conduct of Business.
The Company shall not, and shall not permit any of its Subsidiaries to engage
in any business other than the business engaged in by each of them on the date
hereof and any businesses or activities substantially similar or related
thereto other than as contemplated by the Business Plan.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability
by way of agreement, contingent or otherwise, to purchase, to provide funds
for payment, to supply funds to or otherwise invest in the debtor or otherwise
to assure the creditor against loss) any Indebtedness of any other Person,
except for guaranties by endorsement of negotiable instruments for deposit or
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business, and except for the guaranties of the permitted
obligations of any wholly-owned Subsidiary except as provided for in Exhibit
3.12.
<PAGE>
(e) Investments in Other Corporations or Entities.
Make or permit any Subsidiary to make, any loan or advance to any Person, or
purchase, otherwise acquire, or permit any Subsidiary to purchase or otherwise
acquire, the capital stock, assets comprising the business of, obligations of,
or any interest in, any other corporation or entity which will not be operated
as a wholly-owned Subsidiary, except:
(i) investments by the Company in AM Data Transmission Corporation and/or
Data Design & Development Corporation;
(ii) investments by the Company or a Subsidiary in evidences of indebtedness
issued or fully guaranteed by the United States of America and having a
maturity of not more than one year from the date of acquisition;
(iii) investments by the Company or a Subsidiary in certificates of deposit,
notes, acceptances and repurchase agreements having a maturity of not more
than one year from the date of acquisition issued by a bank organized in the
United States having capital, surplus and undivided profits of at least
$100,000,000;
(iv) investments by the Company or a Subsidiary in the highest-rated
commercial paper having a maturity of not more than one year from the date of
acquisition;
(v) investments by the Company or a Subsidiary in "Money Market" fund shares,
or in money market accounts fully insured by the Federal Deposit Insurance
Corporation and sponsored by banks and other financial institutions, provided
that the investments consist principally of the types of investments described
in clauses (i), (ii) or (iii) of this subsection 4.02(e); or
(vi) loans or advances from a Subsidiary to the Company or from the Company
to a Subsidiary.
(f) Amendments.
Amend the Certificate of Incorporation or By-laws of the Company.
(g) Issuance of Equity Securities.
Until the Company has complied with the affirmative covenants set forth in
Section 4.01(j) above, authorize or issue or obligate itself to issue, any
additional shares of capital stock of the Company of any class, provided,
however, that the provisions of this Section 4.02(g) shall not apply to the
issuance of: (i) the Warrant Shares; (ii) up to 3,576,666 shares of Common
Stock issuable on the exercise of outstanding stock options and warrants;
(iii) shares of Common Stock issuable upon the conversion of the Company's
Convertible Preferred Stock or Series B Preferred Stock; and (iv) shares of
Common Stock issued on or after the date hereof to directors, officers,
employees of the Company pursuant to any of the Company's currently existing
employee benefit plan, 401(k) plan or employee stock ownership plan.
4.03 Reporting Requirements.
The Company will furnish the following to the Purchaser:
(a) Budgets and Operating Plan.
As soon as available and in any event at least 30 days before the beginning of
each fiscal year of the Company, a Business Plan and monthly and quarterly
budgets for the forthcoming fiscal year, and as soon as available and in any
event within 30 days after the end of each calendar month, monthly comparisons
against the Business Plan and monthly operating budgets and an analysis of the
variances from the budget or plan, prepared in accordance with generally
accepted accounting principles consistently applied.
<PAGE>
(b) Notice of Adverse Changes.
Promptly after the occurrence thereof and in any event within five business
days after each occurrence notice of any material adverse change in the
business, assets, properties, Intellectual Property Rights, condition
(financial or otherwise), results of operation or prospects of the Company;
and
(c) Reports and Other Information.
Promptly upon receipt, publication, commencement or occurrence, copies of all
consulting reports, notices of material actions, suits or proceedings,
accountant's reviews and reports to management, and such other information as
the Company shall make available to its directors or stockholders or as the
Purchaser shall reasonably request.
ARTICLE V: REGISTRATION RIGHTS
5.01 Piggy-Back Registrations.
If at any time the Company shall determine to register for its own account or
the account of others under the Securities Act (including pursuant to a demand
for registration of any stockholder of the Company other than the Purchaser
exercising registration rights with respect to the Common Shares) any of its
equity securities, other than on Form S-8 or Form S-4 or their then
equivalents relating to shares of Common Stock to be issued solely in
connection with any acquisition of any entity or business or shares of Common
Stock issuable in connection with stock option or other employee benefit
plans, it shall send to each holder of Registrable Shares, including each
holder who has the right to acquire Registrable Shares, written notice of such
determination and, if within 15 days after receipt of such notice, such holder
shall so request in writing, the Company shall use its best efforts to include
in such registration statement all or any part of the Registrable Shares such
holder requests to be registered, except that if, in connection with any
offering involving an underwriting of Common Stock to be issued by the
Company, the managing underwriter shall impose a limitation on the number of
shares of such Common Stock which may be included in the registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution, then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Shares with respect to which such holder has requested inclusion hereunder;
provided, however, that the Company shall not so exclude any Registrable
Shares unless it has first excluded any securities to be offered and sold by
employees of the Company or by holders who do not have contractual, incidental
rights to include such securities (collectively, "Excludable Shares");
provided further that as between the Company and holders of Registrable
Shares, in no event shall the Registrable Shares included in such offering be
limited to less than 25% of the aggregate number of shares offered. Any
exclusion of Registrable Shares shall be made pro rata among the persons
seeking to include such shares, in proportion to the number of such shares
owned by such persons. No incidental right under this Section 5.01 shall be
construed to limit any registration required under Section 5.02. The
obligations of the Company under this Section 5.01 may be waived at any time
upon the written consent of holders of 60% of the outstanding Registrable
Securities.
5.02 Required Registration.
If on any occasion one or more holders of at least 60% of the outstanding
Common Shares shall notify the Company in writing that it or they intend to
offer or cause to be offered for public sale at least 20% of the Registrable
Shares (or any lesser percentage of the Registrable Shares if the anticipated
aggregate offering price thereof would exceed $2,000,000), the Company will
<PAGE>
notify all holders of Registrable Shares, including all holders who have a
right to acquire Registrable Shares. Upon written request of any holder given
within 15 days after the receipt by such holder from the Company of such
notification, the Company will use its best efforts to cause such of the
Registrable Shares as may be requested by any holder thereof (including the
holder or holders giving the initial notice of intent to offer) to be
registered under the Securities Act as expeditiously as possible. The Company
shall not be required to effect more than two such registrations in the
aggregate. If the Company determines to include shares to be sold by it or by
other selling stockholders in any registration request pursuant to this
Section 5.02, such registration shall be deemed to have been a "piggy-back"
registration under Section 5.01, and not a "demand" registration under this
Section 5.02 if the holders of Registrable Shares are unable to include in any
such registration statement at least 85% of the Registrable Shares initially
requested for inclusion in such registration statement.
5.03 Registrations on Form S-3.
In addition to the rights provided the holder of Registrable Shares in
Sections 5.01 and 5.02 above, if the registration of Registrable Shares under
the Securities Act can be effected on Form S-3 (or any similar form
promulgated by the Commission), then upon the written request of one or more
holders of at least 60% of the outstanding Registrable Shares, the Company
will so notify each holder of Registrable Shares, including each holder who
has a right to acquire Registrable Shares, and then will, as expeditiously as
possible, use its best efforts to effect qualification and registration under
the Securities Act on Form S-3 of all or such portion of the Registrable
Shares as the holder or holders shall specify; provided, however, the Company
shall not be required to effect a registration pursuant to this Section 5.03
unless the market value of the Registrable Shares to be sold in any such
registration shall be estimated to be at least $500,000 at the time of filing
such registration statement, and further provided that the Company shall not
be required to effect more than one registration during any 12-month period
pursuant to this Section 5.03.
5.04 Effectiveness.
The Company will use its best efforts to maintain the effectiveness for up to
90 days (or such shorter period of time as the underwriters need to complete
the distribution of the registered offering, or one year in the case of a
"shelf" registration statement on Form S-3) of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from
time to time will amend or supplement such registration statement and the
prospectus contained therein to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation. The
Company will also provide each holder of Registrable Shares with as many
copies of the prospectus contained in any such registration statement as it
may reasonably request.
5.05 Indemnification of Holder of Registrable Shares.
In the event that the Company registers any of the Registrable Shares under
the Securities Act, the Company will indemnify and hold harmless each holder
and each underwriter of the Registrable Shares (including their officers,
directors, affiliates and partners) so registered (including any broker or
dealer through whom such shares may be sold) and each Person, if any, who
controls such holder or any such underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them become
subject under the Securities Act, applicable state securities laws or under
any other statute or at common law or otherwise, as incurred, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter
<PAGE>
and each such controlling Person, if any, for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, as incurred,
insofar as such losses, claims, damages, expenses, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus (or
the registration statement or prospectus as from time to time amended or
supplemented by the Company) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under
the Securities Act or any state securities laws applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, unless (i) such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or formal prospectus in reliance
upon and in conformity with information furnished in writing to the Company in
connection therewith by any such holder of Registrable Shares (in the case of
indemnification of such holder), any such underwriter (in the case of
indemnification of such underwriter) or any such controlling Person (in the
case of indemnification of such controlling person) expressly for use therein,
or unless (ii) in the case of a sale directly by such holder of Registrable
Shares (including a sale of such Registrable Shares through any underwriter
retained by such holder of Registrable Shares to engage in a distribution
solely on behalf of such holder of Registrable Shares), such untrue statement
or alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus copies
of which were delivered to such holder of Registrable Shares or such
underwriter on a timely basis, and such holder of Registrable Shares failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation for the sale of the Registrable Shares to the person asserting
any such loss, claim, damage or liability in any case where such delivery is
required by the Securities Act.
Promptly after receipt by any holder of Registrable Shares, any underwriter or
any controlling Person of notice of the commencement of any action in respect
of which indemnity may be sought against the Company, such holder of
Registrable Shares, or such underwriter or such controlling person, as the
case may be, will notify the Company in writing of the commencement thereof
(provided, that failure to so notify the Company shall not relieve the Company
from any liability it may have hereunder) and, subject to the provisions
hereinafter stated, the Company shall be entitled to assume the defense of
such action (including the employment of counsel, who shall be counsel
reasonably satisfactory to such holder of Registrable Shares, such underwriter
or such controlling Person, as the case may be), and the payment of expenses
insofar as such action shall relate to any alleged liability in respect of
which indemnity may be sought against the Company.
Such holder of Registrable Shares, any such underwriter or any such
controlling Person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel subsequent to any assumption of the defense by the Company shall
not be at the expense of the Company unless the employment of such counsel has
been specifically authorized in writing by the Company. The Company shall not
be liable to indemnify any Person for any settlement of any such action
effected without the Company's written consent. The Company shall not, except
with the approval of each party being indemnified under this Section 5.05,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to the parties being so indemnified of a release from all liability
in respect to such claim or litigation.
<PAGE>
In order to provide for just and equitable contribution to joint liability
under the Securities Act in any case in which any holder of Registrable Shares
exercising rights under this Article V, any underwriter, or any controlling
Person of any such holder or underwriter, makes a claim for indemnification
pursuant to this Section 5.05 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5.05 provides for indemnification in such case, then, the
Company, on the one hand, and such holder, underwriter or controlling Person,
on the other hand, will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of the holder of Registrable Shares, underwriter or
controlling Person on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of the holder of Registrable Shares, underwriter or
controlling Person on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the holder of
Registrable Shares, underwriter or controlling Person on the other, and each
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided, however, that, in any
such case, (A) no such holder, underwriter or controlling Person will be
required to contribute any amount in excess of the public offering price of
all such Registrable Shares offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled
to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
5.06 Indemnification of Company.
In the event that the Company registers any of the Registrable Shares under
the Securities Act, each holder of the Registrable Shares so registered will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed or otherwise participated in the preparation of the
registration statement, each underwriter of the Registrable Shares so
registered (including any broker or dealer through whom such of the shares may
be sold) and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act from and against any and all losses,
claims, damages, expenses or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, applicable state
securities laws or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse the Company and each such
director, officer, underwriter or controlling Person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus (or
in the registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such holder of Registrable Shares expressly for use therein;
provided, however, that such holder's obligations hereunder shall be limited
<PAGE>
to an amount equal to the proceeds received by such holder of Registrable
Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect
of which indemnity may be sought against such holder of Registrable Shares,
the Company will notify such holder of Registrable Shares in writing of the
commencement thereof (provided that failure to so notify such holder shall not
relieve such holder from any liability it may have hereunder), and such holder
of Registrable Shares shall, subject to the provisions hereinafter stated, be
entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to the Company) and the
payment of expenses insofar as such action shall relate to the alleged
liability in respect of which indemnity may be sought against such holder of
Registrable Shares. The Company and each such director, officer, underwriter
or controlling Person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel subsequent to any assumption of the defense by such
holder of Registrable Shares shall not be at the expense of such holder of
Registrable Shares unless employment of such counsel has been specifically
authorized in writing by such holder of Registrable Shares. Such holder of
Registrable Shares shall not be liable to indemnify any Person for any
settlement of any such action effected without such holder's written consent.
In order to provide for just and equitable contribution to joint liability
under the Securities Act in any case in which the Company, any underwriter, or
any controlling Person or the Company or any underwriter, exercising its
rights under this Article V, makes a claim for indemnification pursuant to
this Section 5.06, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding that this
Section 5.06 provides for indemnification, in such case, then, the Company,
underwriter or controlling Person, on the one hand, and such holder, on the
other hand, will contribute to the aggregate losses, claims, damages, expenses
or liabilities to which they may be subject (after contribution from others)
in such proportion as is appropriate to reflect the relative fault of the
Company, underwriter or controlling Person on the one hand and of the holder
of Registrable Shares on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company, underwriter or controlling Person on the one
hand and of the holder of Registrable Shares on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, underwriter or
controlling Person on the one hand or by the holder of Registrable Shares on
the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, (A) no such holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
5.07 Exchange Act Registration.
The Company will use its best efforts to timely file with the Commission such
information as the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act; and the Company shall use its best efforts
to take all action as may be required as a condition to the availability of
<PAGE>
Rule 144 or Rule 144A under the Securities Act (or any successor exemptive
rule hereinafter in effect) with respect to such Common Stock. The Company
shall furnish to any holder of Registrable Shares forthwith upon request (i) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (iii) such other
reports and documents as a holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a holder to sell any such
Registrable Securities without registration. The Company shall use its best
efforts to facilitate and expedite transfers of the Common Shares pursuant to
Rule 144 under the Securities Act, which efforts shall include timely notice
to its transfer agent to expedite such transfers of Common Shares.
5.08 Damages.
The Company acknowledges that the holder of Registrable Shares may not have an
adequate remedy if the Company fails to comply with this Article V and that
damages may not be readily ascertainable, and in the event of such failure,
the Company shall not oppose an application by the holder of Registrable
Shares or any other Person entitled to the benefits of this Article V
requiring specific performance of any and all provisions hereof or enjoining
the Company from continuing to commit any such breach of this Article V.
5.09 Further Obligations of the Company.
Whenever under the preceding Section of this Article V, the Company is
required hereunder to register Registrable Shares, the Company shall also do
the following:
(a) Furnish to each selling holder such copies of each preliminary and final
prospectus and such other documents as said holder may reasonably request to
facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable Shares
covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; provided, however, that the Company shall not be obligated to qualify
to do business in any jurisdictions where it is not then so qualified or to
take any action which would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so
subject;
(c) Furnish to each selling holder a signed counterpart, addressed to the
selling holders, of
(i) an opinion of counsel for the Company, dated the effective date of the
registration statement, and
(ii) "comfort" letters signed by the Company's independent public accountants
who have examined and reported on the Company's financial statements included
in the registration statement, to the extent permitted by the standards of the
American Institute of Certified Public Accountants, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and (in the case of the accountants' "comfort" letters) with
respect to events subsequent to the date of the financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants'
"comfort" letters delivered to the underwriters in underwritten public
offerings of securities, to the extent that the Company is required to deliver
or cause the delivery of such opinion or "comfort" letters to the underwriters
in an underwritten public offering of securities;
<PAGE>
(d) Permit each selling holder of Registrable Shares or its counsel or other
representatives to inspect and copy such corporate documents and records as
may reasonably be requested by them;
(e) Furnish to each selling holder of Registrable Shares a copy of all
documents filed with and all correspondence from or to the Commission in
connection with any such offering of securities;
(f) Use its best efforts to facilitate the obtaining of all necessary
approvals from the National Association of Securities Dealers, Inc.; and
(g) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earning statement covering the period of at
least 12 months, but not more than 18 months, beginning with the first month
after the effective date of the registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
Whenever under the preceding Sections of this Article V the holders of
Registrable Shares are registering such shares pursuant to any registration
statement, each such holder shall timely provide to the Company, at its
request, such information and materials as it may reasonably request in order
to effect the registration of such Registrable Shares.
5.10 Expenses.
In the case of each registration effected under Section 5.01, 5.02 or 5.03,
the Company shall bear all reasonable costs and expenses of each such
registration on behalf of the selling holders of Registrable Shares,
including, but not limited to, the Company's printing, legal and accounting
fees and expenses, Commission and NASD filing fees, "Blue Sky" fees and
expenses and the reasonable fees and disbursements of one counsel for the
selling holders of Registrable Shares in connection with the registration of
their Registrable Shares; provided, however, that the Company shall have no
obligation to pay or otherwise bear any portion of the underwriters'
commissions or discounts attributable to the Registrable Shares being offered
and sold by the holders of the Registrable Shares, or the fees and expenses of
more than one counsel for the selling holders of Registrable Shares in
connection with the registration of the Registrable Shares. The Company shall
pay all expenses of the holders of the Registrable Shares in connection with
any registration initiated pursuant to this Article V which is withdrawn,
delayed or abandoned at the request of the Company, unless such withdrawal,
delay or abandonment is caused by the fraud, material misstatement or omission
of a material fact by a holder of Registrable Shares to be included in such
registration.
5.11 Approval of Underwriter.
Any managing underwriter engaged in any registration made pursuant to Section
5.02 shall be a nationally recognized firm requiring the approval in writing
of the holders of a majority of the Registrable Shares requesting such
registration and the consent of the Company, which consent shall not be
unreasonably withheld or delayed.
5.12 Transferability.
For all purposes of Article V of this Agreement, the holder of Registrable
Shares shall include not only the Purchaser but (i) any assignee or transferee
of the Registrable Shares who acquires at least 10% of the Registrable Shares
purchased by the Purchaser on the date hereof and who is not a competitor of
the Company, or (ii) any general or limited partner or any officer or director
of any such Person or their affiliates, including, but not limited to, their
<PAGE>
immediate family, irrevocable trusts for estate planning purposes and personal
representatives; provided, however, that such assignee or transferee agrees in
writing to be bound by all of the provisions of this Agreement.
5.13 Mergers, Etc.
The Company shall not, directly or indirectly, enter into any merger,
consolidation or reorganization in which the Company shall not be the
surviving corporation unless the proposed surviving corporation shall, prior
to such merger, consolidation or reorganization, agree in writing to assume
the obligations of the Company under Article V of this Agreement, and for that
purpose references hereunder to Registrable Shares shall be deemed to be
references to the securities which the holders of Registrable Shares would be
entitled to receive in exchange for Registrable Shares under any such merger,
consolidation or reorganization; provided, however, that the provisions of
this Section 5.13 shall not apply in the event of any merger, consolidation,
or reorganization in which the Company is not the surviving corporation if all
stockholders are entitled to receive in exchange for their Registrable Shares
consideration consisting solely of (i) cash, (ii) securities of the acquiring
corporation which may be immediately sold to the public without registration
under the Securities Act, or (iii) securities of the acquiring corporation
which the acquiring corporation has agreed to register within 90 days of
completion of the transaction for resale to the public pursuant to the
Securities Act.
5.14 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the holders of at least a majority of the Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder of any securities of the Company the right to require the Company to
initiate any registration of any securities of the Company. Any right given
by the Company to any holder or prospective holder of the Company's securities
in connection with the registration of securities shall be conditioned such
that it shall be consistent with the provisions of this Article V and with the
rights of the holder provided in this Agreement. This Article V shall not
limit the right of the Company to enter into any agreements with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder if such rights are
subordinate to the rights of a holder of Registrable Securities.
ARTICLE VI: RIGHT OF FIRST REFUSAL
6.01 Right of First Refusal.
Except as set forth in Section 6.06, before the Company shall issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or
set aside for issuance, sale or exchange, any (i) shares of Common Stock, (ii)
any other equity security of the Company, including without limitation, shares
of Preferred Stock, (iii) any convertible debt security of the Company,
including without limitation, any debt security which by its terms is
convertible into or exchangeable for any equity security of the Company, (iv)
any security of the Company that is a combination of debt and equity, or (v)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any such equity security or any such debt security of the Company, the
Company shall, in each case, first offer to sell such securities (the "Offered
Securities") to the Purchaser at a price and on such other terms as shall have
been specified by the Company in writing delivered to the Purchaser (the
<PAGE>
"Offer"), which Offer by its terms shall remain open and irrevocable for a
period of 30 days from receipt of the Offer.
6.02 Notice of Acceptance.
Notice of the Purchaser's intention to accept, in whole or in part, any Offer
made pursuant to Section 6.01 shall be evidenced by a writing signed by the
Purchaser and delivered to the Company prior to the end of the 30-day period
of such offer, setting forth the number of Offered Securities the Purchaser
elects to purchase (the "Notice of Acceptance").
6.03 Conditions to Acceptances and Purchase.
(a) Permitted Sales of Refused Securities.
In the event that a Notice of Acceptance is not given by the Purchaser in
respect of all the Offered Securities, the Company shall have 90 days from the
end of said 30-day period to sell any such Offered Securities as to which a
Notice of Acceptance has not been given by the Purchaser (the "Refused
Securities") to the Person or Persons specified in the Offer, but only for
cash and otherwise in all respects upon terms and conditions, including,
without limitation, unit price and interest rates, which are no more
favorable, in the aggregate, to such other Person or Persons or less favorable
to the Company than those set forth in the Offer.
(b) Reduction in Amount of Offered Securities.
In the event the Company shall propose to sell less than all of the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 6.03(a) above), then the Purchaser may reduce the number of shares or
other units of the Offered Securities specified in its Notice of Acceptance to
an amount which shall be not less than the amount of the Offered Securities
which the Purchaser elected to purchase pursuant to Section 6.02 multiplied by
a fraction, (i) the numerator of which shall be the amount of Offered
Securities that the Company actually proposes to sell, and (ii) the
denominator of which shall be the amount of all Offered Securities. In the
event that the Purchaser so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not sell or
otherwise dispose of more than the reduced amount of the Offered Securities
until such securities have again been offered to the Purchaser in accordance
with Section 6.01.
(c) Closing.
Upon the closing, which shall include full payment to the Company, of the sale
to such other Person or Persons of all or less than all the Refused
Securities, the Purchaser shall purchase from the Company, and the Company
shall sell to the Purchaser, the number of Offered Securities specified in the
Notice of Acceptance, as reduced pursuant to Section 6.03(b) if the Purchaser
has so elected, upon the terms and conditions specified in the Offer. The
purchase by the Purchaser of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Purchaser of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Purchaser and its counsel.
6.04 Further Sale.
In each case, any Offered Securities not purchased by the Purchaser or other
Person or Persons in accordance with Section 6.03 may not be sold or otherwise
disposed of until they are again offered to the Purchaser under the procedures
specified in Sections 6.01, 6.02 and 6.03.
<PAGE>
6.05 Termination and Waiver of Right of First Refusal.
The rights of the Purchaser under this Article VI may be waived only upon the
prior written consent of the Purchaser and shall terminate when the Purchaser
owns less than ten percent of the Common Shares.
6.06 Exceptions.
The rights of the Purchaser under this Article VI shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock or
upon any subdivision or combination of shares of Common Stock;
(b) Preferred Stock issued as a dividend to holders of Preferred Stock upon
any subdivision or combination of shares of Preferred Stock;
(c) up to 3,576,666 shares of Common Stock issued upon the exercise of
outstanding stock options and warrants;
(d) up to 405,000 shares of Common Stock issued upon the exercise of stock
options granted after the date hereof to directors, officers, employees or
consultants of the Company and any Subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, employee stock ownership plan,
employee benefit plan, stock purchase agreement, stock plan, stock restriction
agreement, consulting agreement or other option, arrangement, agreement or
plan approved by two-thirds of the members of the Compensation Committee
(including the Investor Directors on such Committee, if any), or if there is
no such committee, by a majority of the members of the Board of Directors of
the Company (including the Investor Directors);
(e) securities issued upon conversion of convertible securities described in
Exhibit 3.17; and
(f) the Warrant Shares upon the exercise of the Warrants.
Each of the foregoing numbers shall be subject to equitable adjustment in the
event of any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event.
ARTICLE VII: DEFINITIONS AND ACCOUNTING TERMS
7.01 Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Accredited Investor" shall have the meaning assigned to that term in Rule 501
under the Securities Act.
"Agreement" means this Common Stock and Warrant Purchase Agreement as from
time to time amended and in effect between the parties, including all Exhibits
hereto.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Business Plan" shall have the meaning assigned to that term in Section 4.01.
"Closing" shall have the meaning assigned to that term in Section 1.03.
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
"Common Shares" shall have the meaning assigned to that term in Section 1.01
of this Agreement.
"Common Stock" includes (a) the Company's Common Stock, $0.01 par value, as
authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company authorized on or after
the date hereof, the holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and distributions on
any shares entitled to preference, and the holders of which shall ordinarily,
in the absence of contingencies or in the absence of any provision to the
contrary in the Company's Certificate of Incorporation, be entitled to vote
for the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a contingency or
provision), and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" means Mikros Systems Corporation, a Delaware corporation, and its
successors and assigns.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and
its Subsidiaries consolidated in accordance with generally accepted accounting
principles consistently applied throughout reporting periods.
"Consulting Agreement" shall have the meaning assigned to that term in Section
2.02(j).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission (or
of any other federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"Indebtedness" means (i) any liability for borrowed money or evidenced by a
note or similar obligation given in connection with the acquisition of any
property or other assets (other than trade accounts payable incurred in the
ordinary course of business); (ii) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not
the same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, and (iii) the present value of any lease payments due under leases
required to be capitalized in accordance with applicable Statements of
Financial Accounting Standards, determined by discounting all such payments at
the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"Intellectual Property Rights" means any and all, whether domestic or foreign,
patents, patent applications, patent right, trade secrets, confidential
business information, formula, processes, laboratory notebooks, algorithms,
copyrights, mask works, licenses, permits, license rights, contract rights
with employees, consultants and third parties, trademarks, trademark rights,
inventions and discoveries, and other such rights generally classified as
intangible assets in accordance with generally accepted accounting principles.
<PAGE>
"Investor Directors" means those directors of the Company who are
representatives of the Purchaser.
"Key Employee" means and includes the Chairman, President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, or any other
individual so designated by the Board of Directors of the Company or by the
Investor Directors.
"LTIP" shall have the meaning assigned to that term in Section 1.05.
"License Agreement" shall have the meaning assigned to that term in Section
2.02.
"Management Stockholders" shall have the meaning assigned to that term in the
Voting Agreement.
"1996 Business Plan" shall have the meaning assigned to that term in Section
3.08.
"Non-Competition, Assignment of Inventions and Nondisclosure Agreement" shall
have the meaning assigned to that term in Section 2.02(j).
"Notice of Acceptance" shall have the meaning assigned to that term in Section
6.02.
"Offer" shall have the meaning assigned to that term in Section 6.01.
"Offered Securities" shall have the meaning assigned to that term in Section
6.01.
"Person" means an individual, corporation, partnership, joint venture, trust,
university, or unincorporated organization, or a government, or any agency or
political subdivision thereof.
"Purchaser" shall have the meaning assigned to that term in Section 1.01 of
this Agreement and shall include the original Purchaser and also any other
holder of any of the Shares.
"Refused Securities" shall have the meaning assigned to that term in Section
6.03.
"Registrable Shares" shall mean and include (i) the Common Shares; (ii) the
shares of capital stock of the Company acquired pursuant to Article VI hereof;
(iii) the Warrant Shares; (iv) shares of Common Stock acquired directly or
indirectly pursuant to Article VI hereof; and (v) shares of Common Stock
issued or issuable by way of stock split, stock dividend or the like in
respect of any of the foregoing clauses (i) to (iv); provided, however, that
shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares upon the consummation of any sale pursuant to a
registration statement, Section 4(l) of the Securities Act or Rule 144 under
the Securities Act; and provided further that Registrable Shares shall not
include capital stock otherwise acquired primarily as, or acquired pursuant to
exercise of options or rights granted to any employee primarily as,
compensation for employment or services and not for a cash investment in the
Company.
"SSI" shall mean Safeguard Scientifics, Inc.
"Securities Act" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission (or of any
other federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
<PAGE>
"Subsidiary" or "Subsidiaries" means any Person of which the Company and/or
any of its other Subsidiaries (as herein defined) directly or indirectly owns
at the time at least 50% of the outstanding voting shares of every class of
such corporation or trust other than directors' qualifying shares.
"Voting Agreement" shall have the meaning assigned to that term in Section
2.02(i) of this Agreement.
7.02 Accounting Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles, consistently
applied, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
ARTICLE VIII: MISCELLANEOUS
8.01 No Waiver; Cumulative Remedies.
No failure or delay on the part of any party to this Agreement in exercising
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
8.02 Amendments, Waivers and Consents.
Any provision in the Agreement to the contrary notwithstanding, and except as
hereinafter provided, changes in, termination or amendments of or additions to
this Agreement may be made, and compliance with any covenant or provision set
forth herein may be omitted or waived, if the Company (i) shall obtain consent
thereto in writing from the holder or holders of at least a majority in
interest of the Common Shares and (ii) shall deliver copies of such consent in
writing to any holders who did not execute such consent; provided, that no
consents shall be effective to reduce the percentage in interest of the Common
Shares the consent of the holders of which is required under this Section
8.02. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. Any
termination, amendment, addition or waiver effected in accordance with this
Section 8.02 shall be binding upon the Company and the Purchaser.
8.03 Addresses for Notices.
All notices, requests, demands and other communications provided for hereunder
shall be in writing and given by (a) personal delivery, (b) certified mail,
return receipt requested, (c) commercial overnight courier for next day
delivery, or (d) telecopy, in each case as follows:
If to the Purchaser: at the address set forth on page 1 hereof, or at such
other address as shall be designated by the Purchaser in written notice to the
Company complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at such other
address as shall be designated by the Company in a written notice to the
Purchaser complying as to delivery with the terms of this Section.
<PAGE>
All such notices, requests, demands and other communications shall be deemed
given the date of personal delivery, the third business day after mailing, the
next business day after delivery to such courier (unless the return receipt or
the courier's records evidence a later delivery), or when electronically
confirmed if by telecopy.
8.04 Costs, Expenses and Taxes.
As a condition precedent to the Closing, the Company shall pay at the Closing
in connection with the preparation, execution and delivery of this Agreement
and the issuance of the Purchased Securities, the reasonable fees and other
out-of-pocket expenses of counsel for the Purchaser. In addition, the Company
shall pay the reasonable fees and out-of-pocket expenses of one legal counsel,
one firm of independent public accountants, consultants and other outside
experts retained by the Purchaser in connection with any amendment or waiver
to this Agreement (initiated by the Company) or the successful enforcement of
this Agreement by the Purchaser. In addition, the Company shall pay any and
all stamp, or other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement, the issuance of
the Common Shares and Warrants and the other instruments and documents to be
delivered hereunder or thereunder, and shall save the Purchaser harmless from
and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes.
8.05 Binding Effect; Assignment.
Except as provided in Section 5.12, this Agreement shall be binding upon and
inure to the benefit of the Company and the Purchaser and their respective
heirs, successors and assigns, except that the Company shall not have the
right to delegate its obligations hereunder or to assign its rights hereunder
or any interest herein without the prior written consent of the holders of at
least a majority in interest of the Common Shares then outstanding.
8.06 Survival of Representations and Warranties.
All representations and warranties made in this Agreement, certificates
representing the Common Shares, or any other instrument or document delivered
in connection herewith or therewith, shall survive the execution and delivery
hereof or thereof.
8.07 Prior Agreements.
This Agreement and the other agreements executed and delivered herewith
constitute the entire agreement between the parties and supersede any prior
understandings or agreements concerning the subject matter hereof.
8.08 Severability.
The provisions of this Agreement and the Voting Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of a provision contained in this
Agreement or the Voting Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement or the Voting Agreement; but this Agreement and
the Voting Agreement shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or part of a provision, had never been
contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
8.09 Confidentiality.
The Purchaser shall keep confidential and will not disclose or divulge the
terms of this Agreement or any confidential, proprietary or secret information
which the Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to the
Purchaser pursuant to this Agreement or in connection with the preparation and
<PAGE>
negotiation hereof, or pursuant to visitation or inspection rights granted
hereunder, unless such information is known, or until such information becomes
known, to the public; provided, however, that the Purchaser may disclose such
information (i) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Common Shares from the Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 8.09, (iii) to any affiliate or partner of the Purchaser and (iv) as
required by applicable law.
8.10 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of Delaware, and without giving effect to choice of
laws provisions.
8.11 Dispute Resolution.
(a) Good-Faith Negotiations.
If any dispute arises under this Agreement that is not settled promptly in the
ordinary course of business, the parties shall seek to resolve any such
dispute between them, first, by negotiating promptly with each other in good
faith in face-to-face negotiations. These face-to-face negotiations shall be
conducted by the respective designated senior management representative of
each party. If the parties are unable to resolve the dispute between them
through these face-to-face negotiations within 20 days (or such period as the
parties shall otherwise agree) following the date of notification (the "Notice
Date") by one party to the other of the existence of such dispute, then any
such disputes shall be resolved in the following manner.
(b) Mediation.
The parties shall endeavor to resolve any dispute arising out of or relating
to this Agreement by mediation under the CPR Mediation Procedures for Business
Disputes. Unless otherwise agreed, the parties will select a mediator from
the CPR Panels of Neutrals and shall notify CPR to initiate the selection
process.
(c) Resolution of Disputes.
(i) Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $1,000,000 ("Summary
Proceeding"), arising out of or relating to this Agreement or any other
agreement executed in connection herewith or the breach, termination or
validity thereof which has not been resolved by mediation as provided herein
within 90 days of the Notice Date, shall be litigated exclusively in the
Superior Court of the State of Delaware (the "Delaware Superior Court") as a
summary proceeding pursuant to Rules 124-131 of the Delaware Superior Court,
or any successor rules (the "Summary Proceeding Rules"). Each of the parties
hereto hereby irrevocably and unconditionally (A) submits to the jurisdiction
of the Delaware Superior Court for any Summary Proceeding, (B) agrees not to
commence any Summary Proceeding except in the Delaware Superior Court, (C)
waives, and agrees not to plead or to make, any objection to the venue of any
Summary Proceeding in the Delaware Superior Court, (D) waives, and agrees not
to plead or to make any claim that any Summary Proceeding brought in the
Delaware Superior Court has been brought in an improper or otherwise
inconvenient forum, (E) waives, and agrees not to plead or to make, any claim
that the Delaware Superior Court lacks personal jurisdiction over it, (F)
waives its right to remove any Summary Proceeding to the federal courts except
where such courts are vested with sole and exclusive jurisdiction by statute
and (G) understands and agrees that it shall not seek a jury trial or punitive
<PAGE>
damages in any Summary Proceeding based upon or arising out of or otherwise
related to this Agreement or any other agreement executed in connection
herewith or the breach, termination or validity thereof, and waives any and
all rights to any such jury trial or to seek punitive damages.
(ii) In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does
not exceed $1,000,000 (a "Proceeding"), arising out of or relating to this
Agreement, or any other agreement executed in connection herewith or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(iii) If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted
on a confidential basis, under the U.S. Arbitration Act, if applicable, and
the then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Agreement and the substantive law of the State of Delaware, including such law
in respect of the statute of limitations. The arbitration shall be conducted
at the Association's regional office located closest to the Company's
principal place of business by three arbitrators at least one of whom shall be
knowledgeable in AM/FM technology, programming and implementation, one of whom
shall be an attorney and one of whom shall be a member of a "Big Six"
accounting firm. The arbitrators are not empowered to award damages in excess
of compensatory damages and each party hereby irrevocably waives any right to
recover such damages with respect to any such disputes. Judgment upon the
arbitrators' aware may be entered and enforced in any court of competent
jurisdiction.
(d) Neither party shall be precluded hereby from securing equitable remedies
in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but shall not be sought as a means to avoid or stay arbitration or
Summary Proceeding.
(e) Each party is required to continue to perform its obligations under this
contract pending final resolution of any dispute arising out of or relating to
this contract, unless to do so would be impossible or impracticable under the
circumstances.
8.12 Headings.
Article, section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8.13 Counterparts.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
8.14 Further Assurances.
From and after the date of this Agreement, upon the request of the Purchaser
or the Company, the Company and the Purchaser shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Common Shares.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
MIKROS SYSTEMS CORPORATION
By: /s/ Thomas J. Meaney
--------------------------------------
Thomas J. Meaney
President and Chief Executive Officer
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By: /s/ Thomas C. Lynch
--------------------------------------
Thomas C. Lynch
Senior Vice President
<PAGE>
Exhibit 10.2
LICENSE AGREEMENT
This LICENSE AGREEMENT dated as of November 15, 1996 by and between DATA
DESIGN & DEVELOPMENT CORPORATION, a Delaware corporation ("3D"), and MIKROS
SYSTEMS CORPORATION, a Delaware corporation ("Mikros").
W I T N E S S E T H :
Mikros has developed certain patented and proprietary technology relating to
transmissions in the AM and FM broadcast bands ("Technology"). In
consideration for an investment in Mikros by Safeguard Scientifics (Delaware),
Inc. ("Safeguard") and the formation of, and investment in, AM Data
Transmission Corporation, a Delaware corporation ("AMDTC") by Safeguard and
Mikros,
(i) Mikros has agreed to assign all right, title and interest to the
Technology to 3D;
(ii) Subject to the terms and conditions of this Agreement, 3D has agreed to
grant an exclusive, perpetual license to Mikros for the FM Technology in the
United States, Canada and Mexico ("Territory") and a non-exclusive license to
Mikros to develop improvements for the AM Technology in the Territory and
under the terms of a License Agreement between 3D and AMDTC ("AMDTC License
Agreement"), 3D has agreed to grant an exclusive, perpetual license to AMDTC
for the AM Technology in the Territory;
(iii) Subject to the terms and conditions of this Agreement and the AMDTC
License Agreement, Mikros and AMDTC have agreed to disclose and assign to 3D
all modifications, enhancements and other derivative works ("Improvements")
that they make to the Technology.
(iv) Subject to the terms and conditions of this Agreement and the AMDTC
License Agreement, 3D has agreed to license to Mikros all Improvements to the
Technology developed by 3D, AMDTC and Mikros and to license to AMDTC all
Improvements to the AM Technology developed by 3D, AMDTC and Mikros.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS.
1.1 "AM Technology" all inventions, Improvements, enhancements,
modifications, discoveries, claims, formulae, processes, proprietary
procedures, apparatuses, source code, object code, mask works, Technical
Information, Patents, copyrights, trademarks, trade secrets, technologies and
know-how, whether or not covered by claims of proprietary rights, owned or
controlled by 3D on the date hereof in connection with transmission in the AM
broadcast band AM=550KHz to 1750KHz.
1.2 "Confidential Information" shall mean any and all information or
portion thereof disclosed to or otherwise acquired or observed by either party
or its employees, agents or representatives (each individually referred to as
a "recipient") either directly or indirectly from the other party, including
but not limited to the Technology, Improvements and the FM Products, as well
as any other information regarding either party's research, development,
<PAGE>
Patents, Technical Information, know-how, trade secrets, knowledge, designs,
drawings, specifications, concepts, data, reports, methods, processes,
documentation, methodology, pricing, marketing plans, customer lists, salaries
or business affairs, and any other information or knowledge owned or developed
by either party, except for information which the recipient can demonstrate:
(i) was at the time of disclosure to such recipient part of the public domain
or thereafter becomes part of the public domain through no act or omission by
such recipient; or
(ii) was lawfully in such recipient's possession as shown in written records
prior to disclosure by the disclosing party and without obligation of
confidentiality; or
(iii) was lawfully received by such recipient after disclosure from a third
party without obligation of confidentiality and without violation by said
third party of an obligation of confidentiality to another.
1.3 "FM Products" shall mean any product, thing or service developed or
distributed by Mikros embodying, incorporating, made with or otherwise
utilizing all or any part of the FM Technology.
1.4 "FM Technology" all inventions, improvements, enhancements,
modifications, discoveries, claims, formulae, processes, proprietary
procedures, apparatuses, source code, object code, mask works, Technical
Information, Patents (including without limitation U.S. Patent No. 5,220,584),
copyrights, trademarks, trade secrets, technologies and know-how, whether or
not covered by claims of proprietary rights, owned or controlled by 3D on the
date hereof in connection with transmission in the FM Broadcast Band FM=88MHz
to 108MHz.
1.5 "Improvements" shall mean all inventions, improvements, enhancements,
modifications, discoveries, claims, formulae, processes, apparatuses, source
code, object code, mask works, Technical Information, Patents, trade secrets,
technologies and know-how, whether or not covered by claims of proprietary
rights, created or made by 3D, Mikros or jointly by 3D and Mikros during the
term hereof in connection with the AM Technology, FM Technology or FM
Products, as the case may be.
1.6 "Patents" shall mean any current or future patent or patent application
in any country, including any extensions or future extension mechanisms,
including Supplementary Protection Certificates or the equivalent thereof,
renewals, continuations, continuations-in-part, divisions,
patents-of-additions, and/or reissues thereof.
1.7 "Technical Information" shall mean technical data and information in
the possession of either party in a tangible form, which is related to the AM
Technology or the FM Technology, as the case may be, or is developed in the
course of the development activities contemplated by Section 3 hereof and
which is needed or helpful in the practice or use of the AM Technology, FM
Technology or FM Products, as the case may be.
1.8 "Technology" shall mean, collectively, the AM Technology and the FM
Technology.
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1.9 "Territory" shall mean the countries of the United States, Canada and
Mexico.
2. LICENSES
2.1 Grant of Development License for FM Technology.
Subject to the limitations described below, 3D hereby grants to Mikros an
exclusive, royalty-free, perpetual right and license:
(i) to make, have made, use, improve, copy, develop, have improved, copied
and/or developed, and otherwise develop and manufacture the FM Technology and
any FM Product thereof in the Territory for all commercial, military and other
applications of the FM Technology in the Territory; and
(ii) to sublicense or otherwise authorize others, with further right of
sublicense at any number of levels, in the Territory to do any or all of the
foregoing.
2.2 Grant of Development License for AM Technology.
Subject to the limitations described below, 3D hereby grants to Mikros a
non-exclusive, royalty-free, perpetual right and license:
(i) to make, have made, use, improve, copy, develop, have improved, copied
and/or developed, and otherwise develop and manufacture the AM Technology in
the Territory; and
(ii) to sublicense or otherwise authorize others, with further right of
sublicense at any number of levels, to do any or all of the foregoing in the
Territory.
2.3 Grant of Marketing License for FM Technology.
Subject to the limitations described below, 3D hereby grants to Mikros an
exclusive, royalty-free, and perpetual right and license:
(i) to import, export, distribute, lease, sell, distribute, and otherwise
market and commercially exploit in any manner the FM Technology and any FM
Product in the Territory for all military and commercial applications of the
FM Technology in the Territory; and
(ii) to sublicense or otherwise authorize others, with further right of
sublicense at any number of levels, in the Territory to do any or all of the
foregoing.
2.4 Exclusivity of License: Title.
All exclusive licenses granted to Mikros (or its assigns or sublicensees)
hereunder will be exclusive as to 3D and all others. 3D shall retain title to
the Technology, the Improvements and any Patents or other intellectual
property rights regarding the Technology and the Improvements. Subject to the
foregoing, Mikros shall be the owner of any and all FM Products developed by
Mikros from the Technology. The parties agree to execute such documents as
reasonably required to document, record and otherwise perfect the interests of
each of the parties in the Technology, FM Products, Patents, Improvements and
other intellectual property rights.
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2.5 No Other Transfers Permitted.
3D agrees that, without the prior express written consent of Mikros and except
as provided in the AMDTC Agreement, 3D will not assign, sell, convey, lease,
license, transfer, hypothecate, encumber or suffer imposition of any lien on,
grant any right or interest in, or disclose to any third party any
Confidential Information concerning, any of the FM Technology or any FM
Product in the Territory thereof in contravention of the rights of Mikros
pursuant to this Agreement.
2.6 Marketing of FM Technology.
3D hereby acknowledges and agrees that, as a consequence of the license
granted under this Agreement, Mikros will have the sole and exclusive right to
sell, assign, license, lease, convey, transfer, market, develop, manufacture
or otherwise commercially exploit and deal with its rights in the FM
Technology in the Territory for military, commercial and other applications.
Mikros shall have the sole and exclusive right to grant any assignment or
sublicense of its rights hereunder, either directly or indirectly through one
or more third parties upon such terms as Mikros may in its sole discretion
determine. Mikros shall have the right to market or commercially exploit its
rights in the FM Technology in the Territory in any manner it deems reasonably
appropriate or advisable. Mikros hereby acknowledges and agrees that it shall
have no right to sell, assign, license, lease, convey, transfer, market,
develop, manufacture or otherwise commercially exploit military, commercial or
other applications of the AM Technology throughout the world or the FM
Technology outside of the Territory, unless 3D and Mikros subsequently enter
into a license agreements or license agreements with respect to any or some of
such rights.
3. PRODUCT DEVELOPMENT
3.1 Development of FM Products.
During the term of this Agreement, Mikros shall have the entire responsibility
for the development of FM Products in the Territory hereunder, including
without limitation, research, supply of materials, manufacture of prototypes
and any applicable government approvals. Mikros shall use its reasonable
commercial efforts to create, develop and complete FM Products, and obtain any
applicable regulatory approval thereof. Mikros also shall be responsible for
all costs and expenses related to development of the FM Products, including,
without limitation, the costs of obtaining requisite government approvals.
3.2 Conduct of Development.
While Mikros has full responsibility for the development of the FM Products in
the Territory, it is intended that there will be full cooperation between 3D
(and its other licensees) and Mikros with respect to the conduct of such
development and that there will be a free flow of information between 3D (and
its other licensees) and Mikros in order to promote development of
commercially viable FM Products. Each of Mikros and 3D agrees to promptly
inform the other party of any significant developments relating to the
Technology and/or Improvements, including without limitation, the development,
discovery or reduction to practice of any potential FM Product. Such
communication may contain, in addition to any other pertinent information,
such party's good faith assessment of the patentability and commercial
viability of any such potential FM Product.
3.3 Delivery of Improvements.
Within thirty (30) days of the receipt by 3D of any Improvement from AMDTC or
ninety (90) days of the completed development of any Improvement by 3D, 3D
shall deliver to Mikros the Improvement, including without limitation copies
<PAGE>
of all written and electronic embodiments of the know-how and copies of all
documentation, technical manuals, software and specifications relating to the
Improvement. Within ninety (90) days of the completed development by Mikros
of any Improvement, Mikros shall deliver to 3D the Improvement, including
without limitation copies of all written and electronic embodiments of the
know-how and copies of all documentation, technical manuals, software and
specifications relating to the Improvement. Mikros shall assign to 3D all
intellectual property rights it may then or thereafter possess in such
Improvements and execute all documents, and take all actions, that may be
necessary to confirm such rights.
4. PATENT PROSECUTION
4.1 Patent Counsel.
Mikros shall, by qualified independent patent counsel, file and prosecute in
those countries selected solely by Mikros all applications for Patents in the
Territory relating to the FM Technology and any FM Products thereof. 3D
and/or its representatives shall be entitled to meet and confer with such
patent counsel at reasonable time(s) and place(s). Mikros shall promptly
deliver to 3D of any communications with the applicable patent office,
including without limitation, copies of all office actions and drafts of all
proposed responses and any patentability search reports made by patent
counsel, including patents located, a copy of each patent application, and
each patent that issues thereon. It is the intent of the parties that all
materials shall be provided to 3D with appropriate lead time for 3D to review
and comment upon such materials prior to their submission to the applicable
patent office.
4.2 Maintenance of Patents and Patent Applications.
From and after the date of this Agreement, Mikros agrees to take all actions
reasonably necessary to diligently prosecute and maintain any Patents covered
by the FM Technology in the Territory in the respective patent offices in
which such patent applications have been or will be filed.
4.3 Financing of Patent Costs.
Mikros shall bear all costs for the preparation, prosecution, issuance and
maintenance of all patent applications that may be filed after the execution
of this Agreement that cover the FM Technology and/or any FM Product(s)
thereof in the Territory.
4.4 Discontinuance of Obligation to Pay.
Mikros may, with respect to the FM Technology and/or any FM Product(s)
thereof, at any time, in its sole discretion decide that it desires to
discontinue its responsibility for prosecution and maintenance of a particular
patent application or applications, or with respect to one or more patent
applications in a particular country. In such event, Mikros shall notify 3D
promptly in writing of its intention to discontinue responsibility for
prosecution and maintenance for such patent application or applications within
a period of sixty (60) days prior to the effective date of such
discontinuance, in order to permit 3D to determine whether it wishes to assume
the responsibility therefore. 3D shall have the right and option, but not the
obligation, to assume the responsibility for prosecution and maintenance of
such discontinued patent or patent applications. 3D shall inform Mikros in
writing of its decision to assume the responsibility for prosecution and
maintenance of such discontinued patent or patent applications and Mikros
shall execute and deliver such documents and take such actions as are
reasonably necessary or appropriate to effect such assumption and transfer of
responsibility.
<PAGE>
4.5 Recordation.
If either 3D or Mikros so requests in writing, the parties will promptly file
and record with the United States Patent Office, and with any other applicable
patent office or authority, a copy or memorandum of this Agreement and any
other agreement granting Mikros rights in the FM Technology.
4.6 Patent Enforcement.
Mikros shall have the first right to institute patent infringement actions
against third parties based on any Patents covering the FM Technology in the
Territory. If Mikros does not institute an infringement proceeding against an
offending third party, 3D shall have the right, but not the obligation, to
institute such an action. The costs and expenses of any such action
(including without limitation attorney's fees) shall be borne by the party
instituting the action, or, if the parties elect to share costs instituting
and maintaining such action, such costs and expenses shall be borne by the
parties in such proportions as they may agree in writing. 3D shall be
entitled to counsel in such proceedings at its own expense as necessary or
appropriate. Each party shall execute all necessary and proper documents and
take such action as shall be appropriate to allow the other party to institute
and prosecute such infringement actions. Any award paid by third parties as a
result of such an infringement action (whether by way of settlement or
otherwise), shall be paid to the party who instituted and maintained such
action, or, if both parties instituted and maintained such action, such
award shall be allocated among the parties in proportion to their respective
contributions to the costs and expenses incurred in such action.
4.7 Patent Infringement.
In the event that an action for patent infringement is commenced against
Mikros and its sublicensees and 3D, whether severally or jointly, based on the
manufacture, use or sale of any FM Product in the Territory, Mikros shall
defend such action on behalf of the appropriate parties at is own expense. 3D
shall be entitled to counsel in such proceedings at its own expense as
necessary or appropriate.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES
5.1 Representations and Warranties of Mikros.
Mikros hereby represents and warrants to 3D that:
(i) it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full corporate power and
authority to own its properties and to conduct the businesses in which it is
now engaged:
(ii) it has full corporate power and authority to execute and deliver this
Agreement and to perform all of its obligations hereunder, and no consent or
approval of any other person or governmental authority is required therefore.
The execution and delivery of this Agreement by Mikros, the performance by
Mikros of its covenants and agreements hereunder and the consummation by
Mikros of the transactions contemplated hereby have been duly authorized by
all necessary corporate actions. This Agreement constitutes a valid and
legally binding obligation of Mikros, enforceable against it in accordance
with its terms; and
(iii) neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, violates any provision
of the Certificate of Incorporation of By-Laws of Mikros or any law, statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflicts with or results in any breach of any of the terms of or
<PAGE>
constitutes a default under or results in the termination of or the creation
of any lien pursuant to the terms of any contract or agreement to which Mikros
is a party or by which any of the assets of Mikros is bound.
5.2 Representation and Warranties of 3D.
3D hereby represents and warrants to Mikros that:
(i) it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full corporate power and
authority to own its properties and to conduct the businesses in which it is
now engaged;
(ii) it has full corporate power and authority to execute and deliver this
Agreement and to perform all of its obligations hereunder, and no consent or
approval of any other person or governmental authority is required therefore.
The execution and delivery Agreement by 3D, the performance by 3D of its
covenants and agreements hereunder and the consummation by 3D of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and legally binding
obligation of 3D, enforceable against it in accordance with its terms; and
(iii) neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, violates any provision
of the Certificate of Incorporation or By Laws of 3D or any law, statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflicts with or results in any breach of any of the terms of or
constitutes a default under or results in the termination of or the creation
of any lien pursuant of the terms of any contract or agreement to which 3D is
a party or by which any of the assets of 3D is bound.
6. LIMITATION ON LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES WHATSOEVER EVEN IF THE
OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, INCLUDING
WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL.
7. CONFIDENTIALITY
7.1 Confidentiality.
Except to the extent expressly authorized by this Agreement, the AMDTC
Agreement or otherwise agreed in writing, the parties agree that, for the term
of this Agreement and for five (5) years thereafter, the recipient shall keep
completely confidential and shall not publish or otherwise disclose and shall
not use for any purpose any Confidential Information furnished to it by the
other party or developed pursuant to this Agreement; provided, however, that
after the expiration or termination of this Agreement, either party shall be
free to exploit commercially in any manner any proprietary information and
technology which belongs solely or jointly to it.
7.2 Authorized Disclosure.
Each party may disclose Confidential Information of the other party to its
employees, agents or representatives (i) who are required to know such
information in connection with the permitted use of such information and (ii)
who are bound by customary non-use and confidentiality obligations as set
forth in this Section 7.
<PAGE>
8. TERMINATION AND REVERSION OF TECHNOLOGY
8.1 Mutual Termination.
The parties herein may terminate this Agreement by mutual written consent.
Such termination shall be effective 60 days after such a determination or upon
such other date as the parties may mutually agree.
8.2 Termination of License Without Cause.
Mikros may terminate and revert its license and all right to make, use or sell
under this Agreement with respect to any portion of the Technology or with
respect to any FM Product at any time upon sixty (60) days prior written
notice. Such reversion shall be free of any continuing lien on, or grant of
any right or interest in the applicable Technology or FM Product.
8.3 Insolvency or Bankruptcy.
Either party may, in addition to any other remedies available to it by law or
in equity, terminate this Agreement by written notice to the other party in
the event the other party shall have become insolvent or bankrupt, or shall
have made an assignment for the benefit of its creditors, or there shall have
been appointed a trustee or receiver of the other party or for all or a
substantial part of its property, or any case or proceeding shall have been
commenced or other action taken by or against the other party in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up arrangement,
composition or readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect, or there shall have been issued a
warrant of attachment, execution, distraint or similar process against any
substantial part of the property of the other party, and any such event shall
have continued for sixty (60) days undismissed, unbonded and undischarged (any
of the foregoing, an "Insolvency Event').
8.4 Right of Sell Stock on Hand.
Upon termination of any license granted hereunder for any reason, Mikros shall
have the right to complete all work in progress and for one year (or such
longer period as the parties may reasonably agree) to dispose of all FM
Products or substantially completed FM Product then on hand to which such
termination applies.
8.5 Effect of Termination.
In the event of a termination of this Agreement pursuant to this Section 9,
except as otherwise provided herein, all rights to the Technology shall revert
to 3D who shall be free to develop, license or otherwise exploit the
Technology as it deems appropriate and Mikros shall (i) take whatever steps
are reasonably necessary and appropriate to effect reversion to 3D of all
rights to the Technology, (ii) return to 3D all information relating to the
Technology and (iii) make no further use of any Confidential Information
related to the Technology.
8.6 Surviving Rights.
Any termination under this Agreement shall be without prejudice to the rights
and remedies of either party with respect to any provisions of this Agreement
or arising out of breaches prior to such termination and shall not relieve
either of the parties of any obligation or liability accrued hereunder prior
to such termination, nor rescind or give rise to any right to rescind anything
done hereunder prior to the time of such termination and shall not effect in
any manner any vested rights of either party arising out of this Agreement
prior to such termination.
<PAGE>
8.7 Sublicensees.
The parties agree that termination of this Agreement, for any reason, shall
not affect existing sublicenses granted in good faith by Mikros pursuant to
Section 2.3 hereof to purchasers of FM Products. Upon termination of this
Agreement as aforesaid, all such sublicenses shall be assumed by 3D.
9. MISCELLANEOUS
9.1 Third Party Beneficiaries.
3D and Mikros expressly agree that: (i) AMDTC and Safeguard shall be "Third
Party Beneficiaries" of this Agreement; (ii) the terms and conditions of this
Agreement, including without limitation, Sections 2.4 and 3.3, shall inure to
the benefit of AMDTC and Safeguard; (iii) AMDTC and Safeguard may directly
enforce the terms and conditions of this Agreement against Mikros or 3D; and
(iv) AMDTC and Safeguard shall be able, among other remedies, to enforce the
provisions of this Agreement by means of specific performance.
9.2 Further Assurances.
The parties hereto agree to execute and deliver such other documents,
instruments and agreements and to take such action as may be necessary, proper
or appropriate to carry out the terms of this Agreement.
9.3 Notices.
All notices required or permitted under this Agreement shall be in writing and
delivered by any method providing for proof of delivery. Any notice shall be
deemed to have been given on the date of receipt. Notices shall be delivered
to the parties at the following addresses until a different address has been
designated by notice to the other party:
If to 3D:
Data Design & Development Corporation
1025 Sentry Lane
Gladwyne, PA 19035
Attention: President
If to Mikros:
Mikros Systems Corporation
3490 U.S. Route One, Building 5
Princeton, NJ 08540
Attention: President and Chief Executive Officer
with a copy to:
Buchanan Ingersoll
College Centre
500 College Road East
Princeton, New Jersey 08540
Attention: William J. Thomas, Esq.
9.4 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
<PAGE>
9.5 Entire Agreement: Modifications.
This Agreement contains the entire agreement among the parties hereto with
respect to the subject matter hereof, and no modification, amendment, change
or supplement shall be effective unless in writing and signed by the party
against which it is sought to be enforced. This Agreement supersedes all
prior understandings, negotiations and agreements relating to the subject
matter hereof.
9.6 Waiver.
The waiver by either party of a breach or default of any provisions contained
herein shall be in writing and shall not be construed as a waiver of any
succeeding breach or default or of the provision itself.
9.7 Expenses.
Except as otherwise provided for under this Agreement, each of the parties
hereto shall hear such party's own expenses in connection with this Agreement
and the transaction contemplated hereby.
9.8 Governing Law.
This Agreement shall be governed by the construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
entirely within such State.
9.9 Headings.
The headings in this Agreement, are solely for convenience of reference and
shall not affect the interpretation of any of the provisions hereof.
9.10 Severability.
If any provision herein contained shall be held to be illegal or
unenforceable, such holding shall not affect the validity or enforceability of
the other provisions of this Agreement.
9.11 Arbitration.
All disputes, other than requests for injunctions or preliminary relief or
patent-related matters, related to this Agreement, or its formation,
interpretation, enforcement or breach, shall be settled by arbitration in
Delaware. The arbitration shall proceed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association before and
arbitrator or arbitrators having knowledge of and experience in the field of
the development of data transmission products and/or licensing matters. The
arbitration award shall be final and binding regardless of whether one of the
parties fails or refuses to participate in the arbitration and shall be
enforceable by any court having jurisdiction thereover. The arbitrator is
empowered to hear and determine all such disputes between the parties
concerning the subject matter of this Agreement, and the arbitrator may award
monetary damages, including interest, restitution and costs. The arbitration
shall be subject to an overall time limitation of not more than 120 days.
9.12 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of each of
Mikros and 3D and each of their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
DATA DESIGN & DEVELOPMENT CORPORATION
By: /s/ Thomas C. Lynch
-------------------------------------
Thomas C. Lynch
President
MIKROS SYSTEMS CORPORATION
By: /s/ Thomas J. Meaney
-------------------------------------
Thomas J. Meaney
President and Chief Executive Officer
<PAGE>
Exhibit 10.3
TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AGREEMENT ("Agreement") is made as of the 15 day of
November, 1996 ("Effective Date") by and among Data Design & Development
Corporation, a Delaware corporation, having a principal place of business at
1025 Sentry Lane, Gladwyne, Pennsylvania 19035 ("Licensor"), AM Data
Transmission Corporation, a Delaware corporation, having a principal place of
business at 800 The Safeguard Building, 435 Devon Park Drive, Wayne,
Pennsylvania 19087 ("Licensee"), and Mikros Systems Corporation, a Delaware
corporation, having its principal place of business at 3490 U.S. Route 1,
Princeton, New Jersey 08540 Fax: (609) 987-8114 ("Mikros").
BACKGROUND
Mikros has developed certain patented and proprietary technology relating to
transmissions in the AM broadcast band ("AM Technology"). In consideration
for an investment in Mikros by Safeguard Scientifics (Delaware), Inc.
("Safeguard") and the formation of, and investment in, Licensee by Safeguard
and Mikros,
(i) Mikros has agreed to assign all right, title and interest to the AM
Technology to Licensor.
(ii) Subject to the terms and conditions of this Agreement, Licensor has
agreed to grant an exclusive, perpetual license to Licensee for the AM
Technology in the United States, Canada and Mexico ("Territory") and under the
terms of a License Agreement between Licensor and Mikros ("Mikros License
Agreement") Licensor has agreed to grant a non-exclusive license to Mikros to
develop improvements for the AM Technology in the Territory.
(iii) Subject to the terms and conditions of this Agreement and the Mikros
License Agreement, Licensee and Mikros have agreed to disclose and assign to
Licensor all modifications, enhancements and other derivative works
("Improvements") that they make to the AM Technology.
(iv) Subject to the terms and conditions of this Agreement and the Mikros
License Agreement, Licensor has agreed to license to Licensee and Mikros all
Improvements to the AM Technology developed by Licensor, Licensee and Mikros.
NOW, THEREFORE, in consideration of the covenants and obligations expressed
herein, and intending to be legally bound, the parties agree as follows:
1. Definitions.
1.1 "AM Broadcast Band" shall mean the AM radio frequency of 550Khz to
1750Khz.
1.2 "AM Product" shall mean (a) any product or service based upon,
embodying, incorporating, utilizing or derived from all or any portion of the
AM Technology, (b) any product or service covered by the Licensor Intellectual
Property and (c) any use of the AM Technology.
<PAGE>
1.3 "AM Technology" shall mean all inventions, discoveries, claims,
formulae, apparatus, software (in object and source code forms), mask works,
layouts, schematics, databases, designs, documentation, technical information
and know-how, whether or not covered by claims of Intellectual Property
Rights, and all modifications and enhancements thereof, that are owned or
controlled by Licensor and that relate to the AM Broadcast Band. The AM
Technology shall include, without limitation, the Patent Rights, Deliverables,
Improvements and Licensor Know-How.
1.4 "Ancillary FM Technology" shall mean any inventions, discoveries,
claims, formulae, apparatus, software (in object and source code forms), mask
works, layouts, schematics, databases, designs, documentation, technical
information and know-how, whether or not covered by claims of Intellectual
Property Rights, and all modifications and enhancements thereof, that are (i)
owned or controlled by Licensor, (ii) relate to the FM Broadcast Band, and
(iii) are reasonably necessary for use and distribution of the AM Technology
by Licensee.
1.5 "Deliverables" shall mean the AM transmission device designs, software
(in source and object code forms), firmware, ASICs, prototypes, circuit
boards, mask works, layouts, schematics, databases documentation and other
tangible items in the possession of Mikros or Licensor related to the AM
Broadcast Band, including the items set forth in Exhibit B to this Agreement.
1.6 "FM Broadcast Band" shall mean the FM radio frequency of 88MHz to
108MHz.
1.7 "Improvements" shall mean any modifications, enhancements or other
derivative works developed by Licensee, Licensor or Mikros related to the AM
Broadcast Band.
1.8 "Intellectual Property Rights" shall mean all forms of intellectual
property rights and protections, including without limitation all right, title
and interest in and to all: (a) letters patent and all filed, pending or
potential applications for letters patent, including any reissue,
reexamination, division, continuation or continuation-in-part applications
throughout the world now or hereafter filed; (b) trade secrets, and all trade
secret rights and equivalent rights arising under common law, state law,
federal law and laws of foreign countries; (c) mask works, copyrights, other
literary property or authors' rights, whether or not protected by copyright or
as a mask work, under common law, state law, federal law and laws of foreign
countries; and (d) proprietary indicia, trademarks, trade names, symbols,
logos and/or brand names under common law, state law, federal law and laws of
foreign countries that a party to this Agreement may adopt from time to time
to identify a party to this Agreement, or any related parties or materials.
1.9 "Licensor Intellectual Property" shall mean any and all Intellectual
Property Rights in the AM Technology which are owned by Licensor.
1.10 "Licensor Know-How" shall mean all information and expertise in
Licensor's possession which is not incorporated in the Deliverables and which
relates to the AM Technology and is useful or required for the development and
commercialization of the AM Technology.
<PAGE>
1.11 "Mikros License Agreement" shall mean the License Agreement entered
into by and between Mikros and Licensor, dated November 15, 1996.
1.12 "Patent Rights" shall mean the patents and patent applications listed
on Exhibit A including, without limitation, all continuations,
continuations-in-part, divisions, patents of addition, reissues, renewals or
extensions of any such Patent Rights.
1.13 "Stock Purchase Agreement" shall mean the Common Stock and Warrant
Purchase Agreement entered into by and between Mikros and Safeguard, dated
November 15, 1996.
1.14 "Territory" shall mean Canada, Mexico and the United States.
1.15 "Third Party" shall mean any person other than a party to this
Agreement.
2. Ownership; Grant of Licenses.
2.1 Ownership.
Licensor shall have and retain all right, title and interest to the AM
Technology, including without limitation all Improvements to the AM
Technology. In the event that Licensee or Mikros creates or otherwise
develops an Improvement to the AM Technology, they shall disclose such
Improvements to Licensor under the terms of Section 2.4 and shall assign to
Licensor all Intellectual Property Rights they may then or thereafter possess
in such Improvements and execute all documents, and take all actions, that may
be necessary to confirm such rights. Except as set forth in this Section 2.1,
Licensee shall have and retain all right, title and interest to the AM
Products.
2.2 Grant of Technology Licenses.
(a) AM Technology License in the Territory.
Subject to the terms and conditions of this Agreement, Licensor hereby grants
to Licensee an exclusive, perpetual, fully paid, right and license to use,
copy, sublicense, distribute and have distributed, and make and have made
derivative works of the AM Technology in the Territory, including, without
limitation, the right to make, have made, use, sell, import and offer to sell
AM Products in the Territory for all commercial, military or other
applications.
(b) Ancillary FM Technology License.
Subject to the terms and conditions of this Agreement, Licensor hereby grants
to Licensee an non-exclusive, perpetual, fully paid, right and license to use,
copy, sublicense, distribute and have distributed, the Ancillary FM Technology
in the Territory solely in conjunction with the AM Technology. Licensee
agrees not to use, sublicense or distribute the Ancillary FM Technology apart
from the AM Technology.
(c) AM Technology Development License.
Subject to the terms and conditions of the Mikros License Agreement, Licensor
shall grant to Mikros a non-exclusive right and license to use, copy, and make
and have made derivative works of the AM Technology in the Territory for
purposes of making Improvements to the AM Technology.
<PAGE>
(d) Limitations.
Licensor agrees not to practice, license, assign or otherwise transfer any
portion of the AM Technology in the Territory after the Effective Date, except
as set forth in Sections 2.2 (a) and (c).
2.3 Delivery of Technology.
Within five (5) days of the Effective Date, Licensor shall deliver to Licensee
the Deliverables and any Ancillary FM Technology, including without limitation
copies of all written and electronic embodiments of the Licensor Know-How and
copies of all documentation, technical manuals, software and specifications
relating to the Deliverables. In the event that Licensor discovers or obtains
possession of any documentation or other materials that would have been
considered as part of a Deliverable or the Ancillary FM Technology at the time
such Deliverable was delivered to Licensee, then Licensor shall promptly
deliver such documentation or other materials to Licensee.
2.4 Delivery of Improvements.
Within thirty (30) days of the receipt by Licensor of any Improvement from
Mikros or ninety (90) days of the completed development of any Improvement by
Licensor, Licensor shall deliver to Licensee the Improvement, including
without limitation copies of all written and electronic embodiments of the
know-how and copies of all documentation, technical manuals, software and
specifications relating to the Improvement. Within ninety (90) days of the
completed development by Licensee of any Improvement, Licensee shall deliver
to Licensor the Improvement, including without limitation copies of all
written and electronic embodiments of the know-how and copies of all
documentation, technical manuals, software and specifications relating to the
Improvement.
2.5 Assistance with Respect to the AM Technology.
Upon request by Licensee and subject to the execution of a consulting or other
arrangement providing for compensation to Mikros or Licensor or as otherwise
agreed by the parties, Mikros or Licensor shall further describe and explain
the AM Technology, train Licensee representatives in the use of the AM
Technology and reasonably assist Licensee in any other way to enable Licensee
to use the Licensor Intellectual Property and to otherwise exercise its
license rights hereunder.
3. Equity Investment; No Royalties.
In consideration of the licenses granted by Licensor to Licensee hereunder,
Safeguard shall execute the Stock Purchase Agreement and has made an
investment in Licensee and an investment commitment to Licensee, as set forth
in Section 6.2 below, in connection with initial development of Improvements
to the AM Technology. Licensee shall have no obligation to pay additional
consideration, including without limitation any royalties, for the licenses
granted herein.
4. Warranties and Representations.
Licensor and Mikros hereby jointly and severally represent and warrant to
Licensee that:
(a) the AM Technology is fully covered by the representations and warranties
related to intellectual property rights contained in the Stock Purchase
Agreement, including without limitation, Sections 3.04, 3.05, 3.07 and 3.22;
<PAGE>
(b) Licensor has the right to grant the licenses granted to Licensee under
this Agreement;
(c) upon execution and delivery of this Agreement, Licensee shall have the
exclusive right and license to make, have made, use, sell, import and offer to
sell the AM Technology and the AM Products in the Territory under all of the
Licensor Intellectual Property;
(d) Licensor owns and retains all right, title and interest in the
Deliverables that are part of the AM Technology and the Intellectual Property
Rights relating thereto and such Deliverables and Intellectual Property Rights
have not been disclosed, licensed, or otherwise transferred to a Third Party;
(e) Exhibit A is a complete and accurate list of any and all Intellectual
Property Rights to the AM Technology owned by Licensor; and Exhibit B is an
accurate and complete list of the AM Technology and Deliverables; and
(f) there are no known or pending claims or actions, nor to the knowledge of
Licensor or Mikros, does any basis exist, in which Licensor or Mikros is a
named party regarding the Licensor Intellectual Property.
5. Additional Covenants.
5.1 Deliverables.
Licensor shall not license or otherwise transfer the Deliverables that are
part of the Licensor Intellectual Property to a Third Party in the Territory
except to Licensee as provided herein.
5.2 Licensor Intellectual Property.
Licensor shall not license or otherwise transfer the Licensor Intellectual
Property to a Third Party in the Territory except to Licensee as provided
herein.
5.3 Further Commercialization of AM Technology.
In addition to the restrictions set forth in Sections 5.1 and 5.2, neither
Licensor nor Mikros shall attempt to commercialize the AM Technology in the
Territory by licensing or other means as otherwise agreed by the parties
hereto.
6. Term and Termination.
6.1 Term.
This Agreement shall expire upon the later of (a) the last sale of a AM
Product or (b) the expiration of all of the patent rights included in the
Licensor Intellectual Property.
6.2 No Termination of Agreement Except for Specific Cause.
The parties acknowledge and agree that this Agreement may not be terminated by
either party, except Licensor may terminate this Agreement in the event that
Safeguard fails to provide Licensee with a cumulative total of $1,000,000
within eighteen (18) months of the Effective Date.
<PAGE>
6.3 Survival.
The provisions of Sections 2.1, 2.2 and 6.3 and Articles 1, 7, 9 and 10 shall
survive any termination of this Agreement. Licensee and Licensor acknowledge
that the rights granted to License under this Agreement, including without
limitation the perpetual rights granted under Article 2, shall be considered
"rights to intellectual property" under Section 365(n) of the United States
Bankruptcy Act.
7. Exchange of Information and Confidentiality.
7.1 This Agreement contemplates the exchange of certain confidential and
proprietary information by one party (the "Disclosing Party") to the other
party (the "Receiving Party") during the term of this Agreement (the
"Confidential Information"). Confidential Information shall include the terms
of this Agreement. With respect to Confidential Information of the Disclosing
Party, the Receiving Party shall:
(a) use the respective Confidential Information only for the purpose of
performing its duties or exercising its rights under this Agreement and no
other purpose, subject to the terms and conditions of this Agreement;
(b) safeguard the respective Confidential Information against disclosure to
others with the same degree of care as it exercises with its own Confidential
Information of a similar nature; and
(c) not disclose the respective Confidential Information to any Third Party
(except to its actual or potential employees, agents, consultants, investors,
licensees and customers who are bound to the Receiving Party by a like
obligation of confidentiality) without the express written consent of the
Disclosing Party.
7.2 The obligations of Section 7.1 shall not apply to that Confidential
Information of the Disclosing Party which:
(a) is now, or in the future becomes, public knowledge other than through the
acts or omissions of the Receiving Party;
(b) is lawfully obtained by the Receiving Party from sources independent of
the Disclosing Party; and,
(c) the Receiving Party is required to disclose by law or pursuant to the
direction of a court or government agency; provided the Disclosing Party is
first given a reasonable opportunity to contest such disclosure.
7.3 The obligations of this Article 7 shall remain in effect during the
term of this Agreement and for the three (3) year period beginning on the
termination or expiration date of this Agreement.
8. Intellectual Property Rights and Prosecution.
8.1 Patent Filings.
Licensee shall, by qualified independent patent counsel, file and prosecute
any applications for Patent Rights in the Territory relating to the AM
Technology. Licensee shall determine whether such applications shall be filed
at its own discretion and shall file the applications in the name of Licensor.
Licensor shall be entitled to meet and confer with such patent counsel at
<PAGE>
reasonable time(s) and place(s). Licensee shall promptly deliver to Licensor
any communications with the applicable patent office, including without
limitation, copies of all office actions and drafts of all proposed responses
and any patentability search reports made by patent counsel, including patents
located, a copy of each patent application, and each patent that issues
thereon. It is the intent of the parties that all materials shall be provided
to Licensee with appropriate lead time for Licensee to review and comment upon
such materials prior to their submission to the applicable patent office.
8.2 Financing of Patent Costs.
Licensee shall bear all costs for the preparation, prosecution, issuance and
maintenance of all patent applications that may be filed after the execution
of this Agreement that cover the AM Technology in the Territory.
8.3 Discontinuance of Obligation to Pay.
Licensee may, with respect to the AM Technology in the Territory, at any time,
in its sole discretion decide that it desires to discontinue its
responsibility for prosecution and maintenance of a particular patent
application or applications, or with respect to one or more patent
applications in a particular country. In such event, Licensee shall notify
Licensor promptly in writing of its intention to discontinue responsibility
for prosecution and maintenance for such patent application or applications
within a period of sixty (60) days prior to the effective date of such
discontinuance, in order to permit Licensor to determine whether it wishes to
assume the responsibility therefore. Licensor shall have the right and
option, but not the obligation, to assume the responsibility for prosecution
and maintenance of such discontinued patent or patent applications. Licensor
shall inform Licensee in writing of its decision to assume the responsibility
for prosecution and maintenance of such discontinued patent or patent
applications and Licensee shall execute and deliver such documents and take
such actions as are reasonably necessary or appropriate to effect such
assumption and transfer of responsibility.
8.4 Recordation.
If either Licensor or Licensee so requests in writing, the parties will
promptly file and record with the United States Patent Office, and with any
other applicable patent office or authority, a copy or memorandum of this
Agreement and any other agreement granting Licensee rights in the AM
Technology.
9. Intellectual Property Litigation and Indemnification.
9.1 Infringement of Licensor Intellectual Property.
(a) In the event that Licensor or Licensee becomes aware of actual or
threatened infringement of Licensor Intellectual Property anywhere in the
world, that party shall promptly so notify the other party in writing.
(b) Licensee shall have the first right, but not the obligation, to bring, at
its own expense, an infringement action or file any other appropriate action
or claim related to infringement of such Licensor Intellectual Property
against any Third Party in the Territory. If Licensee does not commence a
particular infringement action in a reasonably timely manner, but in no event
more than 120 days after it receives written notice of such infringement,
Licensor, after so notifying Licensee in writing, shall be entitled to bring
such infringement action or any other appropriate action or claim at
Licensor's expense.
<PAGE>
(c) Licensor shall have the first right, but not the obligation, to bring, at
its own expense, an infringement action or file any other appropriate action
or claim related to infringement of such Licensor Intellectual Property
against any Third Party outside of the Territory. If Licensor does not
commence a particular infringement action in a reasonably timely manner, but
in no event more than 120 days after it receives written notice of such
infringement, Licensee, after so notifying Licensor in writing, shall be
entitled to bring such infringement action or any other appropriate action or
claim at Licensee's expense.
(d) The damages and awards recovered in an action brought under this Section
9.1 shall be applied as follows: (1) to reimburse the party defending or
bringing such action; (2) to reimburse the expenses of the other party in
connection with such action; (3) to compensate Licensee in full for all
damages incurred from such infringement, and (4) if Licensee brings the
action, the balance to Licensee and if Licensor brings the action, the
balance, to Licensor.
9.2 Infringement of Third Party Rights.
(a) Licensor and Mikros shall jointly and severally indemnify, defend and
hold harmless Licensee, from and against any loss, damage, or liability,
including attorneys' fees, from any claim, complaint, suit, proceeding or
cause of action, brought against Licensee, that use of the AM Technology
infringes any Intellectual Property Right of any Third Party. Licensee agrees
to (1) notify Licensor and Mikros promptly in writing of any such claim, (2)
permit Licensor and Mikros to defend, compromise or settle such claim, and (3)
provide reasonably available information and assistance regarding such claim.
(b) Should the AM Technology become subject to a claim for infringement of
the Intellectual Property Rights of a Third Party, Licensor and Mikros shall
jointly and severally either (1) procure for Licensee, at no cost to Licensee,
the right to continue to use the AM Technology, or (2) replace or modify the
AM Technology to make the AM Technology noninfringing, provided the
replacement or modified AM Technology provides substantially similar
functionality and performance.
(c) In the event that Mikros or Licensor do not promptly undertake the
defense of such claim as provided in the foregoing, Licensee shall have the
right to undertake the defense of such claim on behalf of, for the account of,
and at the risk and expense of Licensor and Mikros.
(d) It is understood and agreed that the obligations of Mikros to indemnify
Licensee hereunder shall apply only to the AM Technology as in existence on
the date hereof and any Improvements thereto developed by Mikros, pursuant to
consulting agreements with Licensee or otherwise.
10. Miscellaneous.
10.1 No Waiver; Cumulative Remedies.
No failure or delay on the part of any party to this Agreement in exercising
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
<PAGE>
10.2 Amendments, Waivers and Consents.
Changes in, termination or amendments of or additions to this Agreement may be
made, and compliance with any covenant or provision set forth herein may be
omitted or waived, only by a written amendment signed by all the parties
hereto. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
10.3 Addresses for Notices.
All notices, requests, demands and other communications provided for hereunder
shall be in writing and given by (a) personal delivery, (b) certified mail,
return receipt requested, (c) commercial overnight courier for next day
delivery, or (d) telecopy, in each case at the address set forth on page 1
hereof, or at such other address as shall be designated by written notice to
the other Parties complying as to delivery with the terms of this Section.
All such notices, requests, demands and other communications shall be deemed
given the date of personal delivery, the third business day after mailing, the
next business day after delivery to such courier (unless the return receipt or
the courier's records evidence a later delivery), or when electronically
confirmed if by telecopy.
10.4 Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and assigns, except that
Licensor and Mikros shall not have the right to delegate its obligations
hereunder or to assign its rights hereunder or any interest herein without the
prior written consent of Licensee.
10.5 Prior Agreements.
This Agreement and the other agreements executed and delivered herewith
constitute the entire agreement between the parties and supersede any prior
understandings or agreements concerning the subject matter hereof.
10.6 Severability.
The provisions of this Agreement are severable and, in the event that any
court of competent jurisdiction shall determine that any one or more of the
provisions or part of a provision contained in this Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement; but this Agreement shall
be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal and enforceable
to the maximum extent possible.
10.7 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of Delaware, and without giving effect to choice of
laws provisions.
10.8 Dispute Resolution.
Disputes arising under this Agreement shall be resolved under the Dispute
Resolution provisions of Article VIII of the Stock Purchase Agreement.
<PAGE>
10.9 Headings.
Article, section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.10 Counterparts.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
10.11 Further Assurances.
From and after the date of this Agreement, upon the request of any Party,
Licensor, Licensee and Mikros shall execute and deliver such instruments,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
IN WITNESS WHEREOF, the parties, through their authorized officers, have duly
executed this Agreement as of the date first written above.
DATA DESIGN & DEVELOPMENT CORPORATION
By: /s/ Thomas J. Meaney
-------------------------------------
Thomas J. Meaney
Vice President
AM DATA TRANSMISSION CORPORATION
By: /s/ Thomas C. Lynch
-------------------------------------
Thomas C. Lynch
President
MIKROS SYSTEMS CORPORATION
By: /s/ Thomas J. Meaney
-------------------------------------
Thomas J. Meaney
President and Chief Executive Officer
<PAGE>
EXHIBIT A
Patents and other Intellectual Property Rights
EXHIBIT B
Deliverables and AM Technology Summary
